Understanding Independent Contractor Laws

Contractors can either be self-employed or a worker (or employee) if they are employed by an agency and working for a client. Distinguishing from employees and contractors is vital for employers as there are different independent contractor laws. Independent contractor laws are vary greatly from employee rights.

Here is some advice on how you can determine if the individuals you are working with are contractors or employees.

Check if they’re Exempt from PAYE

Self-employed individuals and contractors should not be paid through PAYE if some of the above points are true:

  • They are involved in business whereby they are liable for the success or failure of this business
  • They can work for more than one client
  • They are responsible for fixing any work-related issue on their own time
  • They can delegate when work is completed and who completes it
  • They employ someone to complete the work

Check their Employment Rights

Failing to identify a relationship with employees or contractors can have heavy consequences for employers, as independent contractor laws can vary.

Self-employed individuals and contractors don’t have any employment rights if several of the following points are true:

  • They give quotes or put in bids to get work
  • They submit invoices for their work
  • They are not under direct supervision when working
  • They don’t get holiday pay or sick pay when not working
  • They are responsible for submitting their own NI & tax returns
  • They operate under a contract that mentions ‘self-employed’, ‘contractor’ or ‘consultant’

Differences Between Independent Contractor Laws and Employee Laws

By independent contractor laws, these individuals should have their own liability insurance, employees should be covered by the company’s liability insurance.

Contractors are paid when they submit an invoice for their work, employees are paid on a weekly or monthly basis automatically, without having to provide any invoice or justification for the work done.

The following table sums up the main differences in employment rights.

Employees Contractors
Receive a written statement of employment within 2 months of starting date

x

Receive at least the national minimum wage

x

Receive at least 5.6 weeks paid annual leave (pro rata)

x

Receive statutory sick pay

x

Join the company’s pension scheme

x

Protection against less favourable treatment
(part time, whisle blowing)

x

Protection from unauthorised salary deductions

x

Statutory redundancy payments

x

Company disciplinary & grievance procedures apply

x

Right to request flexible working

x

Right to unpaid parental leave

x

Health & Safety

Data Protection

As an employer, make sure you’re following independent contractor laws. Contracts and have their employment rights respected so you can avoid claims and hefty pay-outs! Contact us to discuss independent contractor laws topic in detail.

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