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Locums - employees, or not?

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  • Publish date: 25 April 2017
  • Archived on: 20 April 2018

Recent changes to IR35 in the public sector could have a real impact on GP employment practices, because it may change how they deal with locums.

The question of employment status is currently a hot topic, not least because of the recent spate of status cases relating to the so-called "gig economy" (with cases being brought against businesses such as Uber and Deliveroo). However, it is important to note there is a difference between status for employment purposes, and status for taxation purposes.

Employment status

In employment terms, individuals can be categorised as either:

  • an employee;
  • a worker; or
  • a self-employment contractor.

An individual's status is extremely important as it informs what rights and protections that individual is entitled to. Employees benefit from the most protection and benefits, including (with requisite service) the right not to be unfairly dismissed, and self-employed contractors the least. Workers are a hybrid derived from European legislation. However, they are entitled to significant benefits such as holiday pay and National Minimum Wage, which is the motivation behind many of the recent status challenges in the "gig economy".

Who is an employee?

The question of status is not addressed sufficiently in legislation. Section 203 of the Employment Rights Act 1996 states an employee is "an individual who has entered into or works under, or, where the employment has ceased, worked under, a contract of employment".

A wider definition applies for discrimination purposes.

Based on the above definition, you may be forgiven for thinking that the question of status is simply dictated by the presence or absence of a "contract of employment", and potentially the terms of that contract. However, this is not the case. When considering the employment status of an individual, an employment tribunal will have regard to the day-to-day reality of the work being undertaken and any label given to the working relationship by the parties may be disregarded. So having the "right" contract isn't enough on its own, and we must therefore look to case law for answers.

Established factors indicating employment status

There are three established factors which indicate employment status. These are:

  1. Mutuality of obligation: Is there commitment from both sides, ie, is the individual required to carry out certain duties and the employer required to pay them?
  2. Personal service: must the individual carry out the duties themselves, or could they send a substitute?
  3. Control: does the employer exercise control over the individual, eg, how and when the duties are undertaken?

Other factors that will be considered 

No single factor will be determinative, and an employment tribunal will consider various other factors such as:

  • whether the individual takes any financial risk and / or has the opportunity to profit from sound management;
  • whether the individual provides his or her own tools or equipment;
  • whether the individual is integrated into the business of the purported employer;
  • the nature and duration of the individual's engagement; and
  • the nature of the pay and benefits received by the individual, including whether remuneration is paid subject to deductions for tax and National Insurance (which would indicate employed status).

In order to be a worker, an individual must be required to provide personal service. However, there is a significant lack of clarity regarding worker status and a blurring of the lines between the tests for employee status and worker status. For example, your locum might not be able to establish they are an employee, but could still succeed in demonstrating that they are a worker.

Where the individual cannot establish either employee or worker status, they will be self-employed.

In the Uber case the degree of control exercised by Uber over the drivers and their working conditions was a significant factor in determining that the drivers were workers as opposed to self-employed contractors for employment purposes. We await the outcome of Uber's appeal against the decision.

Tax status

The tax regime does not recognise worker status. Therefore, for tax purposes, an individual is either employed or self-employed.

While there is some degree of overlap in the tests applied by the employment tribunals and the tax tribunals, the regimes are separate and it is possible, for example, to be a worker for employment purposes but self-employed for tax purposes. This is the outcome of some of the recent "gig-economy" claims.

HMRC have developed an online tool called the Employment Status Indicator (ESI) into which Individuals input information to ascertain their status for tax purposes. Provided the information entered is accurate, the individual can rely on the outcome (having received a unique reference code) in the event their status is later challenged by HMRC.

Note that HMRC has also developed the Employment Status Service, which is specifically designed to assist engagers in ascertaining whether the IR35 rule is engaged.  So far, reform of the intermediaries legislation only affects the public sector, but this does appear to apply to GMS and PMS practices.

Bear in mind that if your locum is deemed to be an employee for tax purposes, it doesn't necessarily mean they are an employee for legal purposes, ie, they may not have the usual employment rights.

Action points

Practices that engage locums as independent contractors should review their contractual documents, and the way they operate, to determine the risk of worker status being established. They will, of course, also have to take account of the reform to the intermediaries legislation and this may give rise to even more incentive to change their procedures.

Claire Hebdige, Tax Manager, Dodd & Co Chartered Accountants

Healthcare Group, April 2017