Potential risks faced by charities engaging self-employed individuals

It is common for organisations, including charities, to engage with “self-employed” individuals under contracts for services. The self-employed are often referred to as freelancers or consultants. If trustees are considering engaging someone on a self-employed basis, they need to be alive to the potential risks.

An illustration of where employment status boundaries can become blurred is in the context of job descriptions, person specifications, and recruitment advertisements, which are generally synonymous with an employment relationship. A self-employed individual is  procured, rather than recruited in the way an employee would be.  

It is important to consider why the self-employed individual should not be treated as an employee. There are, of course, a range of oncosts involved in entering into an employment relationship. This can be difficult to balance against the need to act responsibly with charitable funds and in the best interests of beneficiaries. It is also true that many individuals would prefer to be “self-employed” for a range of personal reasons. However, the risk of misunderstanding an individual’s employment status may prove more costly in the long-run than making an accurate classification at the outset. 

In the event that employment status is disputed, the charity may be exposed to employment tribunal claims. This may include claims for back pay of any national minimum wage shortfall, holiday pay and pension contributions, to name but a few. It is worth noting that status challenges can be brought by individuals themselves and by other bodies such as trade unions (on behalf of their members) and HMRC (following an audit, for example). Given the rise in employment status challenges over recent years, charities should ensure they take informed decisions when engaging so called self-employed contractors.

There is no statutory definition set out in UK legislation of what it means to be self-employed for employment law purposes. There is, however, a growing legacy of case law in this area which has established certain key expectations. For example, a self-employed individual must have an unfettered right to provide a substitute. They should not be subject to the employer’s control or integrated into the workforce in the same way as an employee. There is value in completing HMRC’s employment status check, although note that the employment law and tax tests are slightly different.

It is worth noting that, in the event of an employment status dispute, an employment tribunal will be interested in scrutinising what is actually happening in practice.  It is therefore important that written terms accurately reflect the working arrangements.  

For more advice and assistance on employment status, do not hesitate to contact our Employment Team.