Farm staff: Employed, self-employed or worker – know the rules

In what can often be a rush to hire a new recruit, clearly defining the employment status of that individual can sometimes be overlooked.

Are they an employee, a worker or self-employed? Each has different protections and the tax treatment differs markedly.

See also: How to stay legal when providing farm staff accommodation

Employees have many rights, workers have certain entitlements, and for the self-employed, there are no significant employment law protections.

“Worker status sits in between employee and self-employed, but it can sometimes be quite difficult to establish,” says Kerry Curd, a partner at WBW Solicitors.

“While all employees are workers, not all workers are employees.”

Correctly identifying employment status is crucial for several reasons, she advises.

“The main concern is in regard to the employment rights that different statuses have,” Kerry points out.

If a court, tribunal or HMRC is called on to determine employment status, they will look at all aspects of the arrangement, including the reality of the working relationship compared to the arrangements set out in the contract.

No single test will be conclusive in all cases, she warns.

Another complication is that employment tribunals and HMRC apply slightly different approaches to the question of employment status.

The result may be different from tax and employment law perspectives.

“This is particularly complicated by the fact that HMRC has no equivalent of “worker” status, and only differentiates between those who are employed and those who are self-employed.”

For businesses that are unsure if they have correctly interpreted the status of their workforce, getting legal advice at the earliest opportunity can limit employment disputes and penalties further down the line, she suggests.

“There is a tendency to think that ‘we have always done it like this and never had an issue’, but that doesn’t always mean that it is right in the eyes of the law.”

Kerry explains the factors that determine which of the three statuses of employment an individual falls under, and how this can affect everything from holiday pay and other benefits, to taxation and the national minimum wage (NMW).

Employee

Mutual obligation

The employer is under an obligation to provide an employee with work, while the employee is obliged to make themselves available to do that work in return for payment.

Personal service

The employee is required to provide their services themselves. There is usually no right for them to appoint a substitute.

Control

The employer will have control over what the employee does, how they do it, where and when they do it.

For those holding senior, professional or skilled positions, such as directors, they may retain significant control over how they carry out their work but still be classified as employees.

Other activities

An employee is not usually free to work for other employers without the express permission of their employer.

Nature and length of the engagement

The length of the engagement is often indeterminate, with the exception of fixed-term employment contracts.

The period of engagement does not relate to the performance of a specific task or the production of a specific deliverable.

Pay and benefits

An employee is paid a fixed amount on a regular payment date based on hours worked and their role within the business, irrespective of performance targets or completion of a specific task – shift workers or commission workers however may be employees.

• Pay may be based on an hourly rate or salary based.
• The individual does not set their own rate of pay.
• They may receive benefits such as a pension, bonus, private medical insurance, business vehicle and enhanced employer sick pay, as well as other benefits – for example, enhanced maternity or paternity pay.
• Employees are entitled to paid holiday.

Integration

An employee is integrated into the employer and seen as “part of the furniture”.

They may have line management responsibilities, are entitled to use the employer’s disciplinary and grievance procedures, are subject to the employer’s appraisal procedures and may have a business email address.

They may have to wear a uniform, attend team meetings, be included in business-wide distribution lists, have a business card related to the employer’s business and be invited to the employer’s internal social events.

Facilities and equipment

An employer must provide an employee with the facilities and equipment needed to carry out their job.

Financial risk

An employee is paid even if there is not sufficient work to keep them fully occupied. The individual assumes no financial risk in working for the employer.

Taxation

Employees are not responsible for payment of income tax and national insurance contributions (NICs) on their earnings, with the employer operating PAYE and making deductions at source.

Self-employed

Mutual obligation

For the self-employed, an employer is not obliged to offer work on a regular or frequent basis and the individual has no obligation to accept any work that is offered to them.

Control

The individual has the ability to determine when, where and how they work and is not under the direct supervision of the employer.

Personal service

There is no requirement to carry out the services personally and a self-employed individual has an unqualified right to appoint a substitute.

Alternatively, the right is limited only by a requirement to show that the substitute is as qualified as they are.

Other activities

They don’t have to operate exclusively for one organisation; they are free to provide their services to other customers.

Nature and length of the engagement

The individual is engaged for a finite period to carry out a specific task or project, or to produce a defined service, product or result.

Pay and benefits

Payment is on completion of a specific task, project or deliverable, or on a commission-only basis. The individual may well set their own rate of pay.

There is no entitlement to participate in company benefit schemes and overtime is not normally paid.

They are not entitled to sick pay or holiday pay.

Integration

The individual is not sufficiently integrated within the employer to have a defined role and does not perform services similar to, or substantially the same as, those performed by an employee.

Facilities and equipment

The individual provides their own equipment and materials to perform the services.

Financial risk

The individual risks their own capital and will be personally responsible for any losses arising from their work. They are also responsible for obtaining their own insurance.

They may be required to correct any unsatisfactory work in their own time and at their own expense.

Conversely, they may have the opportunity to profit from the success of the project.

Taxation

The individual is responsible for paying their own income tax and NICs on their earnings and for registering for VAT if the level of their supplies exceeds the relevant registration limit.

Worker

Worker status is the most casual of the three different types of employment status.

A person is generally defined as a worker if they have an arrangement to perform work or services and must turn up for work even if they don’t want to.

Seasonal workers can be employees or workers and will normally include most agency workers and short-term casual workers.

There is also every chance that individuals who come in for a continual number of hours for a regular period are also classified as workers.

A worker cannot usually subcontract their work out to other people, and they do not operate through a limited company as that would make them self-employed.

Whether an individual is a worker, employee or self-employed often comes down to how the “control” test is interpreted by a judge or tribunal, and that is not always consistent.

Anyone defined as a worker is entitled to the NMW, automated payslips, paid holiday and protection against unlawful discrimination.

They are also entitled a statement of written particulars, setting out the terms of engagement between them and the individual or business they are working for.