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ARTICLE ORIGINALLY PUBLISHED January 2017

Self Employed –The Tide Is Turning?

The number of room renters and self-employed contractors grows year on year within the industry; but there have also been a trickle of Employment Tribunal cases highlighting the potential risks and dangers of using self- employment rather than employing staff.

Self- employment can be attractive to salon owners not least because of the financial savings in terms of tax, National Insurance, holiday pay and sick pay but this is only one side of the coin.

HMRC have taken an increasing interest in the legitimacy of self- employment practices in Salons as they lose hundreds of thousand pounds in revenue.

Recent Cases

A salon owner asked his self- employed therapist to arrive at work 30 minutes before the salon opening time to prepare the salon and have a daily team meeting alongside the employed staff. She was unhappy and grumbled to her colleagues about having to attend staff meetings when she wasn’t employed and wasn’t earning anything .The salon owner felt she was deliberately undermining him. He decided he did not want to use her services anymore and gave her notice.

She took her claim to Employment Tribunal claiming that she was really an employee and had been unfair dismissed.

The Tribunal decided she was an employee; she worked according to a rota, there was a specific break time, she had to be available even if she had no clients. In short, her work and time was totally controlled and she wasn’t free to operate her business or work elsewhere. She won her case for compensation. The mere fact someone pays their own tax and insurance doesn’t make them self- employed.

A major case involved car valeters, who successfully argued they were really employed and eligible for the minimum wage and holiday pay. The case went as far as the Supreme Court. They signed contracts describing themselves as” self-employed subcontractors”. They paid their own tax and had to purchase their own insurance, uniforms and materials. Their contracts stated they were under no obligation to attend work, (although in practice they were expected to attend work and provide services personally). However this was a clear case where, despite all the paperwork, the individuals were employees working for an employer and didn’t have the freedom of a self -employed contractor. They won their claim for the NMW and holiday pay. Tribunals look at the realities of what happens rather than just what is written.

The Uber Taxi Case

Was a highly publicised case. It is complicated as the Drivers were found to be workers rather than employees. But, the key issue is the drivers won their case and are now (subject to the appeal) entitled to receive 28 days holiday and the minimum wage. HMRC have provided indicators of what is self-employment and you can check the status of your own self- employed individuals

  • They should exercise independent control and judgement over how the work is carried out
  • They would normally work for a number of people
  • It should be possible for them to make a loss (this is difficult if the arrangement involves them retaining a percentage of their column income) rather than a rent
  • They have the right to appoint a substitute and are not necessarily required to carry out work personally
  • A self-employed worker can decide whether to accept offers of work or not, this of course leads onto they have the option to determine their own working hours
  • They normally have to correct faulty work at own cost and time
  • They provide their own materials and equipment

You may not be able to answer YES to every question above but you would be concerned if you weren't able to say YES to the majority.

Without over complicating the issue let’s look at some of the features of the UBER taxi drivers case which the court found inconsistent with them being self-employed, the comment in bracket is my attempt to relate this to a salon environment.

  • The company claimed the drivers made a contract with the passenger and the company was merely their agent but this didn’t reflect the reality of the situation—the passenger booked through the company and the driver accepted the booking (you can therefore see the vulnerability if the salon deals directly with clients for bookings and payment)
  • Uber interviewed drivers to assess their suitability which looks like recruitment
  • Uber retains the passengers name, address, contact details and takes their money (this is typical in many salons indicating they are the salons clients )
  • Effectively drivers had to accept trips (so the therapist had no control over bookings)
  • Uber set the route for the driver to follow
  • Uber fixed the fare (many self- employed contractors have to use the salon price list)
  • Uber rated the performance of their drivers (therefore appraisals and other performance assessments would be dangerous)
  • Uber handled complaints against driver and rebates (your contract should be explicit that the therapist deals with all complaints about their work)

The employer has indicated they will appeal.

It is a useful reminder and gives you the opportunity to review your current practices and written agreements. It is important to remember that many individuals freely choose self-employment for the additional freedoms and earning potential and they too have risks if they are assessed as employees or workers. For example, if they earn enough the National Insurance contributions are higher for a worker than someone who is self-employed (and of course the employer would also pay. In addition, they would become liable to PAYE and lose some of the advantages of self-employment.



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