A matter of status

Ian Hunter on the rights of self-employed workers

Are you employed or self-employed and does it really matter? The answer is, it depends.

Take Bob, a 20-year-old who completed his apprenticeship. He was told there was no vacancy for him unless he considered self-employed status.

The employer's aim was to save on the tax and National Insurance he would be responsible for if Bob became an employee. Bob was employed on a fixed-term contract during his apprenticeship and had contracted out of his right to claim for unfair dismissal.

Self-employed workers are responsible for making their own Class 2 National Insurance contributions to the DSS. By contrast, employers are responsible for deducting employees' NI contributions from their wage packets.

In addition the employer must make a contribution which varies between 3 per cent and 10.2 per cent of the employee's salary depending on the level of pay.

Employees have the right, provided that the necessary NI contributions have been made, to statutory sick pay, maternity pay and unemployment benefit.

Benefits available to self-employed workers are more limited. Although basic maternity and sickness benefits are available, there is usually no access to unemployment benefit. In addition there is no entitlement to industrial injuries benefit, additional earnings-related pensions or widow's benefits.

The self-employed have advantages. They can pay their tax bill up to two years in arrears and a category of work-related expenses can be set against tax.

In some situations it is difficult to tell whether a worker is self-employed. It is not sufficient for a worker merely to call himself self-employed and to make his own returns in respect of tax and NI.

The Inland Revenue and DSS will, if requested, provide a ruling on a worker's status. Issues such as whether the worker has control over how and when he does his work, whether he provides his own tools, or decides on how the business is run, play a part in determining status. If the worker is deemed to be an employee, the employer will be responsible for any arrears of tax or NI contributions.

Workers concerned about their status should contact either the Citizens Advice Bureau or the Low Pay Unit for guidance.

After two years' employment, employees have a right not to be unfairly dismissed. Claims must be submitted to the industrial tribunal within three months of dismissal.

Awards are made up of two parts. The first tier, the basic award, consists of between pounds 105 and pounds 315 for each completed year of employment, depending on age. The second tier, the compensatory award, is subject to a maximum of pounds 11,300.

As for tax and NI purposes, the industrial tribunal will not be deflected from finding that a worker is an employee, and therefore entitled to bring a claim, even if he is described as self-employed. Just because your employer tells you that you are self-employed does not make it necessarily true.