One of the most frequently asked questions is whether the Construction Industry Scheme (CIS) will in fact help construction businesses to get the employment status of their workers right. To answer this, we need to look at how the employment tribunals analyse employment status and how this compares to the approach taken by HM Revenue & Customs (HMRC). Employment status is significant because UK law provides individuals with different levels of protection depending on their status. For example, only employees can claim unfair dismissal and redundancy pay (except for discrimination legislation).
So can someone under CIS be an “employee”? The answer is yes. HMRC provides contractors with an “employment status indicator” to verify whether their CIS sub-contractor is self-employed or not.
But the employment tribunals apply a different test. Employment law cannot provide such a convenient distinction. In determining whether a worker is an employee, there must be a contract of employment in place. This is determined by asking three questions:
- Is the individual required personally to provide work in exchange for pay?
- Does the “employer” have a sufficient degree of control over the performance of the work to create a “master/servant” relationship?
- Is any term of the relationship inconsistent with employment status?
To take a simple example, HMRC takes the view that if an individual has risked their own money in a venture then they are almost certainly not an employee. Most would say that a sub-contractor is in this position. But what if the “engager” of the sub-contractor requires him to be on site every day between 8.00am and 8.30am, controls the day’s work, provides some but not all of the equipment and pays for the work done? This starts to look like an employment relationship.
The key, as with many things in the curious world of employment law, is to get your documentation right and to make sure that what happens in practice reflects that agreement