Are you treating your contractors as employees?
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Many companies are falling foul of the law by treating their contractor’s as employees. Companies sometimes think it is cheaper to hire a contractor as they don’t have to offer them benefits such as health cover, pension, life assurance, pay them overtime or paid holidays. They also do not have to pay into the National Insurance for a contractor or withhold taxes as a contractor would be responsible for this.
Many a times, there is a fine line between a contractor and an employee.
Some factors taken into consideration when deciding if someone is a contractor:
The project they are working on has a defined start and end date.
They should be free to take on projects with other companies (if there is no conflict of interest).
They should have autonomy on deciding when, where and how they will deliver the work they have been assigned.
They should not be performance managed.
They should not be provided with a laptop or mobile phone or tools required to do their job.
Their terms should not refer to salary or adhering to company policies.
They should have the autonomy of subcontracting the work out if they are not able to complete it.
If the duration of the contract is long-term and the nature of what the project covers.
The question that can be asked is how do I ensure they deliver what they need to deliver if I can’t do any of the above? A meeting can be held with the contractor and a contractual briefing document that can be drawn up that stipulates completion deadlines and quality standards and other obligations that they need to adhere to. If not adhered to, you can stipulate cancellation of payment, etc.
It is imperative that both the company and contractor operates within the rules of the IR35 and that a clear scope of work has been defined.
If HMRC deems a contractor to be an employee, the rate paid to the contractor could be regarded as a salary, which means that the employer would be required to gross this up and pay the HMRC the income tax and National Insurance due on the net sum.
Besides the risk from an HMRC perspective, should your contractor challenge their status with your company, courts and tribunals will look at factors highlighted in the bullet points above to decide if the person was treated by your company as an employee or contractor.
If you require further guidance on the above, then call me on 02032879728 to arrange a discussion.
Visit my website at www.constantiaconsulting.com to complete an Assessment Questionnaire and get a free detailed feedback report on your HR function
