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Whether or not an individual is an employee will depend on a number of factors. It is often advantageous for both an employer and an individual to classify the individual as a consultant or an independent contractor (instead of an employee) as this classification will allow for tax advantages for both the employer and the individual.

However, both the Employment Tribunal and the HMRC will look past the classification and may conclude that the individual is in fact an employee – in which case they will have employment rights (such as the ability to claim unfair dismissal) and income tax and national insurance contributions will be payable.

When deciding whether an individual is an employee or not, both the Employment Tribunal and the HMRC will apply a number of factors. The key factors for consideration are as follows:-

• Whether there is a requirement for the employer to provide work for that individual;

• Where there is an obligation on the individual to accept work offered by the employer, or whether the individual can refuse that work;

• Whether there is a requirement for the individual to personally perform work for the employer, or whether the individual can delegate work to a substitute;

• The degree of control that the employer has over the individual and the way in which the individual carries out their work;

• Whether the individual is paid for periods during which work is not carried out e.g. due to holiday or sickness;

• Whether the employer or the individual provides the equipment that the individual uses for their work; and

• Whether the individual has adopted a degree of financial risk and has the opportunity to profit from their own good performance.

The UK Employment Relations Minister, Joe Swinson, has recently given the HMRC a list of 100 companies who are accused of using unpaid interns. The list has been compiled by a campaigning group called Intern Aware who believe that individuals classified as interns are in fact employees or workers and should therefore be paid the National Minimum Wage. The HMRC will apply the above factors to determine whether each intern is an employee or a worker and has the power to order employers to repay wage (and tax) arrears and to impose an additional penalty of 50% of the total underpayment.

Accordingly, if you use any unpaid interns, you are advised to review your arrangements with them and to consider whether they should be in receipt of National Minimum Wage.

For more information on this subject or any other queries about employment law, please contact Kate Booth on 01484 821309 or at katebooth@eatonsmith.co.uk
Posted Friday 13th of September 2013