The decision to employ or not to employ can be a tough one, especially for a small growing business where finances are tight and income is not guaranteed. Hopefully you want to do things the ‘right way’ – do the right thing by your business and not over commit to costs that are risky; do the right thing by the person you are bringing on board, giving them the right amount of job security and benefits; and do the right thing by HMRC and ensure you are not putting your business and your reputation at risk by not following the rules correctly.
So, what are your options? The 3 main options are to take on a ‘worker’ and have slightly less obligation to provide all the benefits that an employee would have; to take on an ‘employee’ and have the full responsibility of being an employer; or to outsource the services that you need provided to an individual or a company operating as a ‘contractor’ or on a ‘self-employed’ basis.
But which one is right for you?
A worker has a contract – it can be written or verbal. A worker often works on a casual basis, sometimes a zero hours contract. A worker cannot substitute themselves with someone else as the contract is with the individual. The employer provides the equipment and tools needed to do the job and the employer states where and when the work should be done.
A worker is usually not entitled to minimum notice periods, protection against unfair dismissal, statutory redundancy pay or flexible working.
The employer is responsible for deducting any taxes and national insurance contributions from wages.
The advantage to the small growing business is that you have less obligation to the worker than you would to an employee. However, the effect of that is that you may get less commitment and the worker would perhaps feel that you are not investing in them as an individual in the same way that you are with an employee. This type of arrangement would be more suited to manual, casual or less skilled work, where the demand is sporadic rather than constant.
An employee has full employment rights, including statutory sick pay, maternity and paternity rights, minimum notice periods, statutory redundancy pay and protection against unfair dismissal. The employer is responsible for deducting taxes and national insurance contributions from wages. For the employer this is a bigger responsibility, bigger cost and potentially bigger risk however the advantages can outweigh the costs.
For the employee you are making it clear that you are investing in them as an individual, not just the service they can provide. You believe they are the right person for the business in the long term and the psychological contract created by this, if managed in the right way, can benefit your growing business significantly.
Contractor / Self Employed
For many small businesses this seems to be the most attractive option… no costs other than the cost of the work done, very few obligations to provide any benefits, no need for payroll. However, be careful. Outsourcing work to a self-employed person can be a risky decision if you are doing it for the financial benefits when actually what your business needs is an employee or a worker. If you treat the person as an employee, even if you have a contract in place stating they are ‘self-employed’, then you are opening yourself up to significant risk. If your business is subject to an audit and your working practises show that you are treating the person as an ‘employee’ even though the contract states’ self-employed’ you could be liable to pay the national insurance, holiday pay, sick pay and other related costs that you thought you had avoided.
There is no mutual obligation in a relationship with a self-employed person, and this is key. You as a business are not obliged to provide work and the self-employed contractor is not obliged to accept any work offered.
A self-employed person can substitute another worker in their place if needed as the agreement is for a service to be provided and not a specific person.
The business cannot dictate when and where the work is done as long as it is completed in line with the agreement.
This sort of relationship is the most flexible for the business and can be the most cost effective. However, it is meant for situations where a specific service is required for a short-term period. It is not designed to be a long-term solution.
And remember whilst having a written contract in place is essential, your actual working practice is what will take precedent if you are unfortunate enough to be audited.
Deciding on the right way forward for your business is a crucial point in your business growth, and if you a e at that point then ‘congratulations’ – your business is proving successful!
For advice on any of the above, please call Giraffe HR and we can help you to make the right decision for your business: firstname.lastname@example.org