Are your drivers employees, workers, or self-employed? Here’s how to tell the difference – and why it matters
In December, HMRC wrote to the Traffic Commissioners asking them to crack down on self-employed drivers. But does your business understand the legal tests that are applied when determining employment status?
Self-employed drivers are attractive to operators as they have fewer employment rights. However, an individual's employment status is determined not simply by what has been agreed between the parties or recorded in writing, but also by how they carry out the work in practice.
Contracts that do not reflect the reality of the relationship, however ingenious, are likely to be disregarded. Further, contrary to popular belief, the definition of ‘self-employed driver’ within the Road Transport (Working Time) Regulations 2005, mistakenly relied on by many, is irrelevant when considering the status point.
The distinction between the three categories of employee, worker and self-employed is important because it determines the legal rights that are afforded. For example, while most core legal protections only apply to employees, workers do still benefit from some protections, to include paid annual leave and the national minimum wage. The classification is also important for tax reasons.
Master or servant?
Where a driver is working exclusively for an operator, providing personal service in circumstances where they are not running their own business with the operator as the client, at the very least they may well be found to be a worker.
In situations where work has been offered and accepted, and where a driver is also subject to the direction, control and supervision of the operator (effectively a 'master/servant' relationship), the driver is likely to be found to be an employee for the duration of the assignment. Many operators require such drivers to wear the operator's uniform, comply with its policies, and obey its lawful instructions when out on the road.
Getting it wrong can be costly, not just in respect of any litigation pursued by the individual to enforce their employment rights, but also in respect of tax. The tests for determining employment status and tax status are not exactly the same, but they are similar.
If an operator gets it wrong, HMRC will seek backdated tax and NICs, with interest and possibly penalties.
Happy holiday pay
Since a recent European Court of Justice ruling, operators can also face substantial holiday pay bills from individuals whose status has been misclassified as self-employed. This applies to the unpaid holiday that was taken and to the holiday they were discouraged from taking because it would have been unpaid, whether or not they requested the holiday.
It is therefore better to consider the position carefully from the start, and engage drivers on the right kind of contract to protect your business from issues in the future.
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