Payment basis
The issue
The issues here would appear to be whether there is anything either in the
contract, or in the actual relationship between Individual and Client, in
relation to this factor which
·
helps towards a decision on whether that
relationship, had it been direct and without a company in between, would have
been an employment contract - a contract of service - or a contract for
services, or
·
would be inherently inconsistent with a
contract of employment.
Legal issues, and the Revenue Guidelines
Guidelines
Basis of payment - Employees tend to be
paid a fixed wage or salary by the week or month and often qualify for
additional payments such as overtime, long service bonus or profit share.
Independent contractors, on the other hand, tend to be paid a fixed sum for a
particular job. Payment "by the piece" (where the worker is paid according to
the amount of work actually done) or by commission can be a feature of both
employment and self-employment.
The following paragraphs are extracted from the Employment Status Manual,
section ESM1041:
Typically, employees tend to be paid a fixed wage or
salary by the week or month - and often qualify for additional payments such as
overtime, long service bonus or profit share. Independent contractors, on the
other hand, tend to be paid a fixed sum for a particular job.
Care must be taken with this aspect as it is often
inconclusive. There are many examples of employees, who are paid by the piece or
on the basis of commission, and, equally, there are many self-employed
individuals, who charge by the hour or day.
It is often more helpful to see what underlies the method
of payment. For example, it is reasonable to expect someone paying on the basis
of the number of hours of attendance to exercise sufficient control to ensure
value for money. Such control is indicative of employment.
On the other hand, where an individual is paid entirely by
commission but has to meet expenses to undertake the work this could be a
pointer towards the existence of financial risk which is indicative of self
employment.
Also, a car mechanic might be paid a retainer, not in
return for services, but for ensuring that the payer will be given priority over
other work. This is not indicative of employment.
It is important to remember that whilst in some types of work, payment on a
time basis might reasonably be considered consistent with employment and payment
of a fixed price basis with the self-employment (eg the artisan, who if employed
might expect an hourly rate, but if self-employed might well quote a fixed
price), in other areas the opposite may well apply; the employee equivalent of
the highly skilled consultant is almost certain to be salaried (ie not paid on a
time basis), whilst the self-employed may charge by the hour/day or on a fixed
price basis. The guidance and inferences in relation to employment status are
by no means as clear cut as the Revenue might seek to present.
It also must be said that where payment is on a time basis, it is entirely
logical for there also to be a requirement for timesheets.
One case which illustrates the point is WHPT Housing Association Ltd. v.
Secretary of State for Social Services
.,
in which Mr Lowe, an architect, applied to be considered an employee. Mr Lowe
was offered work on a 'freelance basis' with WHPT for about a month to finish
drawings for a project. When the plans had been completed Mr Lowe was told to
supervise the work which would take about nine months. He was required to attend
the offices from 9.30 am to 5.30 pm was supervised by the chief architect, was
supplied with all the same equipment as the Associations architects, was rebuked
on several occasions on one time for being late, and was obliged to
complete timesheets. He was also expected to 'fit in' with an existing
team of architects.
Despite this and further evidence which would support his application to be
an employee the court held otherwise. The decision was based in part on the
facts that he was paid an hourly rate and only for the hours worked
whereas the employees of the association were paid weekly or monthly and none of
them were paid an hourly rate; he received no sickness or holiday pay;
and the hours he worked and absences from the office were "…entirely up to (him)
you…" although not in practice.
Webster J. stated that the question under consideration was "…what was the
principal obligation agreed to be undertaken by (Mr Lowe)?" Webster J.
continued:
"The inescapable inference that I draw from (the) facts is that
Mr Lowe, at no time, undertook any obligation to present himself for service at
the association's premises at any time; …(nor) to provide a specific number of
hours' service… and that his principal obligation was to work as an architect
during the hours of service which he chose to offer…in consideration for which
the association agreed to pay him £3 per hour."
From this Webster J., concluded that if that was indeed the principal
obligation undertaken by Mr Lowe, as a matter of law, 'the contract which
contained that obligation could not constitute a contract of service and could
only constitute a contract for services.'
This case may be rationalized on the basis of lack of control, or lack of
mutuality; but it does make clear that (particularly where payment on a time
basis is consistent with self-employment, and where employees doing similar work
are not paid on a time basis, then it would be wrong to treat
payment on a time basis as an employment pointer - which is nevertheless what
the Revenue seek to do.
Overall, the cases suggest:
·
being paid on a fixed price per project basis suggests
self-employment, and instead may be said to be logically inconsistent with
employment
·
being paid on a time basis is not per se indicative of
employment - accountants and lawyers, clearly self-employed, often charge on a
time basis; it may be - or it may be the opposite - depending on the
circumstances
·
'the method of calculating entitlement to remuneration is not an
essential aspect of the employment relationship'
·
the charging method is less important than the underlying purpose
('Many of the invoices…indicate the hours…but the object appears to me to be to
provide the reason for the particular charge out rate' - Hall v Lorimer
Comment
what would the position be likely to be in relation to this factor for a
hypothetical employee?
·
logic and experience suggests that a
hypothetical employee at the kind of level necessary to have the skills and
ability to provide equivalent services to those provided here would certainly be
salaried, and would probably have a comprehensive salary and benefits package,
incorporating pension etc, and possibly with periodic bonuses.
what would the position be likely to be in relation to this factor for a
hypothetical obviously self-employed person or consultancy (eg Andersens, or by
PWC, or EDI?) Logic and experience suggests that a hypothetical obviously
self-employed person or consultancy would either
·
be paid a fixed price, assuming (1) that the
nature of the services was sufficiently capable of being defined in advance for
a fixed price to be confidently quoted and accepted, and (2) that the parties
chose to so agree; or
·
be paid on a time basis, according to the time
the task consumed; it is perfectly normal for many professional and skilled
individuals, undoubtedly self-employed, to charge by the hour or day.
·
do the facts here actually provide a helpful
pointer towards either view?
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