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Exemptions on hours and rest for workers who choose their hours
Working hours in a week
Understand the limit of working hours in an average week.
Unless the worker has an opt-out agreement, or an exemption applies, workers aged 18 years old or over cannot be forced to work for more than 48 hours a week on average. The average is calculated by adding all the working time over the reference period. Read more on exemptions for workers who choose their hours.
You must keep records of your workers' hours to show you comply with the Working Time Regulations. You must retain these records for two years from the date on which they were made.
Calculating average working hours
Workers' hours are usually calculated as an average over a reference period of 17 weeks. In this, you should make sure to include:
- work-related training
- travel as part of a worker's duties
- working lunches
Working time does not include travelling between home and work (if you have a fixed place of work), lunch breaks, tea breaks, evening classes, or day-release courses unrelated to work.
Under certain circumstances, the reference period may be extended to 26 weeks. Through a workforce or collective agreement, your workers can also agree to a longer period over which to average their working hours - up to 52 weeks.
Opting out of the 48-hour working limit
By signing a written agreement, most workers can agree to work longer than the 48-hour limit. They can cancel this opt-out agreement whenever they want as long as they give their employer at least seven days' notice in writing or a longer notice period (up to three months) if one has been agreed upon between the employer and the worker.
Under the Road Transport (Working Time) Regulations (Northern Ireland) 2005, mobile workers in the road transport industry cannot opt out of the weekly working time limits. There are similar restrictions concerning crews on vessels and aircraft. Read more on exemptions for workers who choose their hours.
Young workers and working hours
Special rules apply to working hours for young people under 18 years old and these differ according to their age. For further information, see employing children and young people.
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Rest breaks and rest periods when working
The breaks workers are entitled to take during working hours and between working days, depending on their employment status.
Your workers are entitled to regular rest breaks when working. Workers aged 18 years old or over should be offered a minimum 20-minute uninterrupted break for every shift lasting more than six hours. This can be unpaid unless the employment contract provides for the rest break to be paid.
You can decide when your workers take their rest breaks, but breaks must not be at the beginning or end of a shift. Employers must make sure that workers can take their rest breaks. You must also allow your workers any rest breaks they need due to any health condition or disability.
Working Time Regulations (Northern Ireland) 2016.
Rest periods between working days
Your workers are entitled to regular rest periods between working days, in addition to any holiday entitlement. See know how much holiday to give your staff.
Workers aged 18 years old and over should have a minimum of 11 hours rest between each working day, and shouldn't be forced to work more than six days in every seven, or 12 days in every 14.
Exceptions for rest periods
Exceptions can be made for:
- exceptionally busy periods, based on objective grounds eg Christmas for retail businesses may be a valid reason
- emergencies
- people working away from home
In these cases, rest periods can be compensated for and taken later. However, compensatory rest should be given immediately after the work period where possible.
The Working Time Regulations (Northern Ireland) 2026 give all workers a right to 90 hours’ rest in a week. This is the sum of their entitlement to daily and weekly rest periods (6 x 11 hours daily rest and 1 x 24 hours weekly rest). The exceptions allow workers to take rest in a different pattern than that set out in the regulations. The principle is that everyone gets their entitlement of 90 hours of rest in a week on average, although some rest may come slightly later than normal.
When organising rest periods you need also to consider the maximum average working week which is normally 48 hours.
Employers must make sure that workers can take their rest.
Young workers and breaks
Workers aged 16 and 17 years old are entitled to at least 30 minutes' breaks, uninterrupted if possible if they work more than four and a half hours. This can be unpaid unless the employment contract provides for the break to be paid. If they also work for another employer, the time worked in total on any day must be considered when calculating entitlement to breaks.
Only in exceptional circumstances can young workers miss their breaks - and then they should receive compensatory rest within three weeks.
Young workers are entitled to have a minimum of 12 hours of consecutive rest between working days, they must also have two days off every week, normally two consecutive days, and this cannot be averaged over a two-week period. Only in exceptional circumstances can these rules be changed.
Employers must make sure that workers can take their rest.
Read more on employing children and young people.
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Exemptions on hours and rest for workers who choose their hours
Exemptions to the rules about working hours, rest breaks, and rest periods for workers who choose their hours.
Certain workers who choose their hours are exempt from the rules for:
- the maximum average hours a worker can work each week
- rest breaks
- rest periods
A worker falls into this category if they can decide when and how long they work.
They may have an element of their working time measured or pre-determined, but otherwise, they decide how long they work. A test, set out in the regulations, states that a worker falls into this category if 'on account of the specific characteristics of the activity in which the worker is engaged, the duration of the worker’s working time is not measured or predetermined, or can be determined by the worker.'
An employer needs to consider whether a worker passes this test. Workers such as senior managers, who can decide when to do their work and how long they work, are likely to pass the test. Those without this freedom to choose are not.
This exception would not apply to workers who are:
- paid hourly
- claiming paid overtime
- working under close supervision
- implicitly required to work
Nobody can be forced to work more than an average of 48 hours a week against their will and this exception does not remove this protection.
Check if special exemptions apply to your business
There are exceptions to the rules about working hours, rest breaks, and rest periods if your workers:
- work a long way from where they live
- have to travel to different places for work
There are also exceptions to cover:
- security or surveillance work to protect property or individuals
- jobs that require round-the-clock staffing, for example in hospitals, residential institutions, and prisons
- some employees working in rail transport
- exceptionally busy periods, based on objective grounds, eg Christmas for retail businesses
- emergencies
In all these cases:
- you should average workers' hours over 26 weeks, rather than 17 weeks, to find their average working week
- your workers are entitled to accumulate their rest periods and take them at a later date - called compensatory rest
Your workers may be covered by other rules if your business is in one of the following sectors:
- air, road, or sea transport
- inland waterways and lakes
- sea fishing
Mobile workers
There are also special rules for mobile workers under the Road Transport (Working Time) Regulations (Northern Ireland) 2005.
Mobile workers include:
- drivers - including employed drivers, own-account drivers, and agency drivers
- members of the vehicle crew, eg a second driver on a coach
- anyone else who is part of the travelling staff, eg a bus conductor, a drayman, a trainee or apprentice, or a security guard aboard a vehicle carrying high-value goods
Workers who only occasionally carry out activities are not covered by these rules. These 'occasional mobile workers' will need to follow the Working Time Regulations (Northern Ireland) 2016 instead.
Mobile workers must not exceed:
- an average of 48 hours per week
- 60 hours in any single week
- ten hours in any 24-hour period, if working at night
Young workers
If you are employing young people, you should remember that there are no exemptions in these industries from the regulations for workers aged under 18 years old.
Read more on employing children and young people.
Night workers
A night worker normally works between 11pm and 6am and works at least three hours at night. Night workers should not work for more than an average of eight hours in each 24-hour period. A night worker cannot opt out of the night work limit, the night work can be calculated over the 17-week reference period but can be longer in some circumstances. Young workers should not normally work at night, although certain exceptions allow for this.
Where a night worker’s work involves special hazards or heavy physical or mental strain, there is an absolute limit of 8 hours on the worker’s working time each day - this is not an average.
Night workers must be offered a free health assessment before they start working nights and regularly after that. Workers do not have to take the opportunity to have a health assessment but it must be offered by the employer.
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Checklist: changing an employee's terms of employment
In this guide:
- Change an employee's terms of employment
- Checking the existing employment contract before making changes
- Consulting employees about changes to their terms of employment
- Failure to agree to employment contract changes
- Checklist: changing an employee's terms of employment
- Advantages and disadvantages of harmonising terms of employment
Checking the existing employment contract before making changes
How to check the details of an existing employment contract.
Before you think about altering any staff contracts, make sure you know exactly what is in the original. Every employee has a contract as soon as they start working for you, even if it has never been written down.
In addition, employees who work for you for a month or more must be given a written statement of main employment particulars within two months of joining. It is not itself a contract, but it can provide evidence of the contract's terms if there is a dispute. Read more on the written statement.
A contract contains both express and implied terms.
Express terms
Express terms are those which are explicitly agreed between employer and employee, either in writing or orally.
They will be made clear in any letter of appointment or written or oral statement made by the employer and accepted by the employee. Express terms may also be written into an individual contract based on other documents such as collective agreements and company handbooks.
Implied terms
Implied terms are not spelled out in a contract in some cases, because they are considered too obvious to mention. For example, if you offer someone a job, it is implied that they will not steal from the company. Another implied term is that the employer will provide a safe working environment.
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Consulting employees about changes to their terms of employment
When and how to consult employees and their representatives.
Some contracts may contain terms that allow employers to make changes in working conditions. These should be reasonable, for example performing additional tasks to reflect seasonal fluctuations in demand. Do not rely on such terms to make more fundamental changes because your employee may then claim the contract has been breached and may make various legal claims against you.
If you impose changes without an agreement, there will be a breach of contract. If the breach is a fundamental one eg a significant change in pay, an employee could resign and regard themselves as having been given no other choice but to do so. If they have more than one year of continuous employment with you, they can claim unfair constructive dismissal in an industrial tribunal. Damages for financial loss, for example, may also be sought in the civil courts if they have under a year of continuous service with you.
If you want to change terms or conditions in a collective agreement with a trade union that you formally recognise, you should always consult with the Trade Union to reach an agreement.
Consultation should be detailed and undertaken with a view to reaching an agreement and you should fully explain the reasons for any changes.
ICE Regulations
The Information and Consultation of Employees (ICE) Regulations give employees in companies with 50 or more employees the right to request to be informed and consulted about significant developments in the workplace. If 10% or more of employees (subject to a minimum of 15 and a maximum of 2,500) make a valid request, businesses are required to negotiate a procedure for informing and consulting with employees.
TICE Regulations
The Transnational Information and Consultation of Employees (TICE) Regulations give employees in multinational companies the right to be represented on a European Works Council (EWC).
EWCs are designed to allow employees in different European Economic Area (EEA) states to be informed and consulted on transnational issues affecting the company. If your business has 1,000 or more employees and at least 150 employees in each of two or more EEA states, you may be subject to the legislation on transnational information and consultation.
Following the UK's withdrawal from the EU, the government has amended the TICE Regulations so that:
- No new requests to set up an EWC or Information and Consultation procedure can be made by people employed in the UK.
- Provisions relevant to the ongoing operation of existing EWCs will remain in force.
- Requests for information or to establish EWCs or Information and Consultation procedures made but not completed before the UK's withdrawal from the EU will be allowed to complete.
See how to inform and consult your employees.
Consultation can take place on a one-to-one basis or in the form of group briefings. Whichever method you choose, you should provide an opportunity for employees to ask questions. Be prepared to answer these questions and ensure employees have the relevant information they need to prepare for the meeting. Always consider an individual's particular circumstances.
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Failure to agree to employment contract changes
What to do if you can't agree changes to employment contracts with employees.
Sometimes, despite negotiation, you may not be able to reach an agreement with an employee over changes to a contract.
But if you impose changes without agreement, there will be a breach of contract.
As noted in the previous page, if the breach of contract is a fundamental one - for instance if it involves a significant change in pay or working hours - an employee could resign and regard themselves as having been given no other choice than to do so ('constructively dismissed'). If they have one year or more of continuous employment with you, they will be able to claim unfair constructive dismissal in an industrial tribunal.
If the breach of contract has caused them a measurable financial loss, employees can also sue for damages, either in industrial tribunals or in the ordinary courts.
Claims and awards
Industrial tribunal claims must normally be made within three months of the employment ending but civil court claims may be made up to six years from the breach of contract.
Awards for damages in industrial tribunals are limited to £25,000 but there is no limit in the ordinary courts.
If employees are unable to seek damages because they have not suffered financial loss, the court may require the employer to abide by the original contract.
Contracts
You can consider terminating the original contract (dismissing the employee), provided you give the required notice. You should provide the minimum statutory notice period, or the notice specified in the employment contract, whichever is longer. See how to issue the correct periods of notice.
You can offer a new, revised contract to the dismissed employee. If the employee believes the dismissal was unfair, and they have one year or more of continuous employment with you, they may complain to an industrial tribunal. It would be up to the tribunal to decide whether the dismissal was fair or unfair.
The offer of a new contract could reduce the amount of a tribunal award because the employee's financial loss has been lessened by accepting the revised terms or because potentially - by rejecting the offer - they have not complied with their duty to lessen the loss. However, it would be sensible to consider seeking legal advice before any potential contract change.
You may have to follow collective redundancy consultation procedures, even when no reduction of the workforce is planned if you intend to impose new terms and conditions on 20 or more employees by terminating their existing contracts. Read more on the redundancy consultation process.
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Checklist: changing an employee's terms of employment
Find out the key steps to take and pitfalls to avoid when making changes to employment contracts.
You may want to change an employee's contract of employment for a number of reasons. Often the nature of your business has changed, perhaps through expansion, a change in economic circumstances, or a reorganisation.
Things to consider when making changes to an employment contract
Make sure you:
- Familiarise yourself thoroughly with the details of any existing contracts before considering what alterations you want to make.
- Consult your staff about any changes you wish to introduce and include their trade union or other elected representatives. Simply imposing changes could mean a claim by employees for damages in a civil court, industrial tribunal, or a constructive dismissal claim before an industrial tribunal.
- Discuss any changes with your staff in a thorough and detailed way, fully explaining the reasons for any planned alteration and taking into consideration the impact of the proposed changes in individual circumstances. Agreed changes should be confirmed in writing to the employee within one month.
- Try, if an agreement cannot be reached with an employee on changes, to negotiate a new contract.
- Document as much in writing as possible.
- Do not assume an employee's acceptance of changes imposed without agreement. An employee may accept the breach of contract, treat the breach as a termination of the contract, and bring a claim for constructive dismissal or continue working under protest making it clear that the change is being treated as a breach of contract. An employee may complain to an industrial tribunal within three months of the change being imposed. The employee would have to resign and not wait too long before doing so, otherwise, it could be taken as an affirmation of the breach.
Breach of contract cases can only be taken to the industrial tribunal if the employment has been terminated and the claim arises on termination of employment.
If the employee continues to work under protest, they may have to sue in a civil court unless the breach results in loss which can be pursued through the Employment Rights (Northern Ireland) Order 1996 part 4 Protection of Wages as an unlawful deduction from wages claim. Such claims would be made to the Industrial Tribunal.
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Advantages and disadvantages of harmonising terms of employment
How reducing differences in pay and other terms and conditions of employment can benefit your business.
In order to reduce or eliminate differences between categories of employees, such as manual and non-manual workers, you should consider harmonising terms and conditions of employment across your business.
Harmonisation is more likely to lead to an improvement in terms and conditions rather than reducing them.
This will not only make your pay and benefits seem fairer to your staff but also help to ensure your pay and benefits system is not unlawfully discriminatory.
If you intend to use harmonisation to reduce any benefit or entitlement, it is important that this change is agreed before implementation and that the previous guidance on varying a contract of employment is followed.
What terms and conditions of employment can be harmonised?
There are different terms and conditions of employment where harmonisation can be used to benefit your business, such as:
- pensions
- overtime
- notice periods
- hours of work
- shift premiums
- canteen facilities
- sick pay schemes
- redundancy terms
- layoffs and short-time working
- holiday entitlements and holiday pay
- payment systems and methods of payment
- time-recording procedures, eg clocking on and off
- fringe benefits, eg health insurance, and company cars
Advantages of harmonisation
The benefits of harmonisation will vary from business to business but may include:
- improved productivity
- more efficient administration
- improved recruitment and retention of employees
- better relationships between different grades of staff
Disadvantages of harmonisation
You may encounter certain problems when introducing harmonisation to your business, such as:
- increased wages bill and pension scheme contributions
- manager and employee resistance to changes to their status or working conditions, especially if they feel they won't personally benefit
- employee management problems if traditional controls are removed, such as clocking on and off
Harmonisation following the transfer of employees into your business
If you buy another business, the rights of any employees who transfer as part of the purchase are protected under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). Employees who transfer to your business do so with their pre-existing terms and conditions intact.
You must not change transferred employees' terms and conditions simply to harmonise them with those of your existing staff.
For more information, see responsibilities to employees if you buy or sell a business.
Introducing harmonisation
For harmonisation to succeed in your business, senior managers must be committed. Involve managers, employees, and - if applicable - workplace representatives both before you finalise any harmonisation programme and during its introduction.
Work out the costs and possible benefits of harmonisation and consider whether any of the costs will be offset by changes in working practices.
You will also need to:
- set a realistic timescale for the introduction of harmonisation
- carry out any necessary training
- monitor and maintain the changes
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Consulting employees about changes to their terms of employment
In this guide:
- Change an employee's terms of employment
- Checking the existing employment contract before making changes
- Consulting employees about changes to their terms of employment
- Failure to agree to employment contract changes
- Checklist: changing an employee's terms of employment
- Advantages and disadvantages of harmonising terms of employment
Checking the existing employment contract before making changes
How to check the details of an existing employment contract.
Before you think about altering any staff contracts, make sure you know exactly what is in the original. Every employee has a contract as soon as they start working for you, even if it has never been written down.
In addition, employees who work for you for a month or more must be given a written statement of main employment particulars within two months of joining. It is not itself a contract, but it can provide evidence of the contract's terms if there is a dispute. Read more on the written statement.
A contract contains both express and implied terms.
Express terms
Express terms are those which are explicitly agreed between employer and employee, either in writing or orally.
They will be made clear in any letter of appointment or written or oral statement made by the employer and accepted by the employee. Express terms may also be written into an individual contract based on other documents such as collective agreements and company handbooks.
Implied terms
Implied terms are not spelled out in a contract in some cases, because they are considered too obvious to mention. For example, if you offer someone a job, it is implied that they will not steal from the company. Another implied term is that the employer will provide a safe working environment.
Developed withAlso on this siteContent category
Source URL
/content/checking-existing-employment-contract-making-changes
Links
Consulting employees about changes to their terms of employment
When and how to consult employees and their representatives.
Some contracts may contain terms that allow employers to make changes in working conditions. These should be reasonable, for example performing additional tasks to reflect seasonal fluctuations in demand. Do not rely on such terms to make more fundamental changes because your employee may then claim the contract has been breached and may make various legal claims against you.
If you impose changes without an agreement, there will be a breach of contract. If the breach is a fundamental one eg a significant change in pay, an employee could resign and regard themselves as having been given no other choice but to do so. If they have more than one year of continuous employment with you, they can claim unfair constructive dismissal in an industrial tribunal. Damages for financial loss, for example, may also be sought in the civil courts if they have under a year of continuous service with you.
If you want to change terms or conditions in a collective agreement with a trade union that you formally recognise, you should always consult with the Trade Union to reach an agreement.
Consultation should be detailed and undertaken with a view to reaching an agreement and you should fully explain the reasons for any changes.
ICE Regulations
The Information and Consultation of Employees (ICE) Regulations give employees in companies with 50 or more employees the right to request to be informed and consulted about significant developments in the workplace. If 10% or more of employees (subject to a minimum of 15 and a maximum of 2,500) make a valid request, businesses are required to negotiate a procedure for informing and consulting with employees.
TICE Regulations
The Transnational Information and Consultation of Employees (TICE) Regulations give employees in multinational companies the right to be represented on a European Works Council (EWC).
EWCs are designed to allow employees in different European Economic Area (EEA) states to be informed and consulted on transnational issues affecting the company. If your business has 1,000 or more employees and at least 150 employees in each of two or more EEA states, you may be subject to the legislation on transnational information and consultation.
Following the UK's withdrawal from the EU, the government has amended the TICE Regulations so that:
- No new requests to set up an EWC or Information and Consultation procedure can be made by people employed in the UK.
- Provisions relevant to the ongoing operation of existing EWCs will remain in force.
- Requests for information or to establish EWCs or Information and Consultation procedures made but not completed before the UK's withdrawal from the EU will be allowed to complete.
See how to inform and consult your employees.
Consultation can take place on a one-to-one basis or in the form of group briefings. Whichever method you choose, you should provide an opportunity for employees to ask questions. Be prepared to answer these questions and ensure employees have the relevant information they need to prepare for the meeting. Always consider an individual's particular circumstances.
Developed withAlso on this siteContent category
Source URL
/content/consulting-employees-about-changes-their-terms-employment
Links
Failure to agree to employment contract changes
What to do if you can't agree changes to employment contracts with employees.
Sometimes, despite negotiation, you may not be able to reach an agreement with an employee over changes to a contract.
But if you impose changes without agreement, there will be a breach of contract.
As noted in the previous page, if the breach of contract is a fundamental one - for instance if it involves a significant change in pay or working hours - an employee could resign and regard themselves as having been given no other choice than to do so ('constructively dismissed'). If they have one year or more of continuous employment with you, they will be able to claim unfair constructive dismissal in an industrial tribunal.
If the breach of contract has caused them a measurable financial loss, employees can also sue for damages, either in industrial tribunals or in the ordinary courts.
Claims and awards
Industrial tribunal claims must normally be made within three months of the employment ending but civil court claims may be made up to six years from the breach of contract.
Awards for damages in industrial tribunals are limited to £25,000 but there is no limit in the ordinary courts.
If employees are unable to seek damages because they have not suffered financial loss, the court may require the employer to abide by the original contract.
Contracts
You can consider terminating the original contract (dismissing the employee), provided you give the required notice. You should provide the minimum statutory notice period, or the notice specified in the employment contract, whichever is longer. See how to issue the correct periods of notice.
You can offer a new, revised contract to the dismissed employee. If the employee believes the dismissal was unfair, and they have one year or more of continuous employment with you, they may complain to an industrial tribunal. It would be up to the tribunal to decide whether the dismissal was fair or unfair.
The offer of a new contract could reduce the amount of a tribunal award because the employee's financial loss has been lessened by accepting the revised terms or because potentially - by rejecting the offer - they have not complied with their duty to lessen the loss. However, it would be sensible to consider seeking legal advice before any potential contract change.
You may have to follow collective redundancy consultation procedures, even when no reduction of the workforce is planned if you intend to impose new terms and conditions on 20 or more employees by terminating their existing contracts. Read more on the redundancy consultation process.
Developed withActionsAlso on this siteContent category
Source URL
/content/failure-agree-employment-contract-changes
Links
Checklist: changing an employee's terms of employment
Find out the key steps to take and pitfalls to avoid when making changes to employment contracts.
You may want to change an employee's contract of employment for a number of reasons. Often the nature of your business has changed, perhaps through expansion, a change in economic circumstances, or a reorganisation.
Things to consider when making changes to an employment contract
Make sure you:
- Familiarise yourself thoroughly with the details of any existing contracts before considering what alterations you want to make.
- Consult your staff about any changes you wish to introduce and include their trade union or other elected representatives. Simply imposing changes could mean a claim by employees for damages in a civil court, industrial tribunal, or a constructive dismissal claim before an industrial tribunal.
- Discuss any changes with your staff in a thorough and detailed way, fully explaining the reasons for any planned alteration and taking into consideration the impact of the proposed changes in individual circumstances. Agreed changes should be confirmed in writing to the employee within one month.
- Try, if an agreement cannot be reached with an employee on changes, to negotiate a new contract.
- Document as much in writing as possible.
- Do not assume an employee's acceptance of changes imposed without agreement. An employee may accept the breach of contract, treat the breach as a termination of the contract, and bring a claim for constructive dismissal or continue working under protest making it clear that the change is being treated as a breach of contract. An employee may complain to an industrial tribunal within three months of the change being imposed. The employee would have to resign and not wait too long before doing so, otherwise, it could be taken as an affirmation of the breach.
Breach of contract cases can only be taken to the industrial tribunal if the employment has been terminated and the claim arises on termination of employment.
If the employee continues to work under protest, they may have to sue in a civil court unless the breach results in loss which can be pursued through the Employment Rights (Northern Ireland) Order 1996 part 4 Protection of Wages as an unlawful deduction from wages claim. Such claims would be made to the Industrial Tribunal.
Developed withActionsAlso on this siteContent category
Source URL
/content/checklist-changing-employees-terms-employment
Links
Advantages and disadvantages of harmonising terms of employment
How reducing differences in pay and other terms and conditions of employment can benefit your business.
In order to reduce or eliminate differences between categories of employees, such as manual and non-manual workers, you should consider harmonising terms and conditions of employment across your business.
Harmonisation is more likely to lead to an improvement in terms and conditions rather than reducing them.
This will not only make your pay and benefits seem fairer to your staff but also help to ensure your pay and benefits system is not unlawfully discriminatory.
If you intend to use harmonisation to reduce any benefit or entitlement, it is important that this change is agreed before implementation and that the previous guidance on varying a contract of employment is followed.
What terms and conditions of employment can be harmonised?
There are different terms and conditions of employment where harmonisation can be used to benefit your business, such as:
- pensions
- overtime
- notice periods
- hours of work
- shift premiums
- canteen facilities
- sick pay schemes
- redundancy terms
- layoffs and short-time working
- holiday entitlements and holiday pay
- payment systems and methods of payment
- time-recording procedures, eg clocking on and off
- fringe benefits, eg health insurance, and company cars
Advantages of harmonisation
The benefits of harmonisation will vary from business to business but may include:
- improved productivity
- more efficient administration
- improved recruitment and retention of employees
- better relationships between different grades of staff
Disadvantages of harmonisation
You may encounter certain problems when introducing harmonisation to your business, such as:
- increased wages bill and pension scheme contributions
- manager and employee resistance to changes to their status or working conditions, especially if they feel they won't personally benefit
- employee management problems if traditional controls are removed, such as clocking on and off
Harmonisation following the transfer of employees into your business
If you buy another business, the rights of any employees who transfer as part of the purchase are protected under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). Employees who transfer to your business do so with their pre-existing terms and conditions intact.
You must not change transferred employees' terms and conditions simply to harmonise them with those of your existing staff.
For more information, see responsibilities to employees if you buy or sell a business.
Introducing harmonisation
For harmonisation to succeed in your business, senior managers must be committed. Involve managers, employees, and - if applicable - workplace representatives both before you finalise any harmonisation programme and during its introduction.
Work out the costs and possible benefits of harmonisation and consider whether any of the costs will be offset by changes in working practices.
You will also need to:
- set a realistic timescale for the introduction of harmonisation
- carry out any necessary training
- monitor and maintain the changes
Developed withActionsAlso on this siteContent category
Source URL
/content/advantages-and-disadvantages-harmonising-terms-employment
Links
Failure to agree to employment contract changes
In this guide:
- Change an employee's terms of employment
- Checking the existing employment contract before making changes
- Consulting employees about changes to their terms of employment
- Failure to agree to employment contract changes
- Checklist: changing an employee's terms of employment
- Advantages and disadvantages of harmonising terms of employment
Checking the existing employment contract before making changes
How to check the details of an existing employment contract.
Before you think about altering any staff contracts, make sure you know exactly what is in the original. Every employee has a contract as soon as they start working for you, even if it has never been written down.
In addition, employees who work for you for a month or more must be given a written statement of main employment particulars within two months of joining. It is not itself a contract, but it can provide evidence of the contract's terms if there is a dispute. Read more on the written statement.
A contract contains both express and implied terms.
Express terms
Express terms are those which are explicitly agreed between employer and employee, either in writing or orally.
They will be made clear in any letter of appointment or written or oral statement made by the employer and accepted by the employee. Express terms may also be written into an individual contract based on other documents such as collective agreements and company handbooks.
Implied terms
Implied terms are not spelled out in a contract in some cases, because they are considered too obvious to mention. For example, if you offer someone a job, it is implied that they will not steal from the company. Another implied term is that the employer will provide a safe working environment.
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Consulting employees about changes to their terms of employment
When and how to consult employees and their representatives.
Some contracts may contain terms that allow employers to make changes in working conditions. These should be reasonable, for example performing additional tasks to reflect seasonal fluctuations in demand. Do not rely on such terms to make more fundamental changes because your employee may then claim the contract has been breached and may make various legal claims against you.
If you impose changes without an agreement, there will be a breach of contract. If the breach is a fundamental one eg a significant change in pay, an employee could resign and regard themselves as having been given no other choice but to do so. If they have more than one year of continuous employment with you, they can claim unfair constructive dismissal in an industrial tribunal. Damages for financial loss, for example, may also be sought in the civil courts if they have under a year of continuous service with you.
If you want to change terms or conditions in a collective agreement with a trade union that you formally recognise, you should always consult with the Trade Union to reach an agreement.
Consultation should be detailed and undertaken with a view to reaching an agreement and you should fully explain the reasons for any changes.
ICE Regulations
The Information and Consultation of Employees (ICE) Regulations give employees in companies with 50 or more employees the right to request to be informed and consulted about significant developments in the workplace. If 10% or more of employees (subject to a minimum of 15 and a maximum of 2,500) make a valid request, businesses are required to negotiate a procedure for informing and consulting with employees.
TICE Regulations
The Transnational Information and Consultation of Employees (TICE) Regulations give employees in multinational companies the right to be represented on a European Works Council (EWC).
EWCs are designed to allow employees in different European Economic Area (EEA) states to be informed and consulted on transnational issues affecting the company. If your business has 1,000 or more employees and at least 150 employees in each of two or more EEA states, you may be subject to the legislation on transnational information and consultation.
Following the UK's withdrawal from the EU, the government has amended the TICE Regulations so that:
- No new requests to set up an EWC or Information and Consultation procedure can be made by people employed in the UK.
- Provisions relevant to the ongoing operation of existing EWCs will remain in force.
- Requests for information or to establish EWCs or Information and Consultation procedures made but not completed before the UK's withdrawal from the EU will be allowed to complete.
See how to inform and consult your employees.
Consultation can take place on a one-to-one basis or in the form of group briefings. Whichever method you choose, you should provide an opportunity for employees to ask questions. Be prepared to answer these questions and ensure employees have the relevant information they need to prepare for the meeting. Always consider an individual's particular circumstances.
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Failure to agree to employment contract changes
What to do if you can't agree changes to employment contracts with employees.
Sometimes, despite negotiation, you may not be able to reach an agreement with an employee over changes to a contract.
But if you impose changes without agreement, there will be a breach of contract.
As noted in the previous page, if the breach of contract is a fundamental one - for instance if it involves a significant change in pay or working hours - an employee could resign and regard themselves as having been given no other choice than to do so ('constructively dismissed'). If they have one year or more of continuous employment with you, they will be able to claim unfair constructive dismissal in an industrial tribunal.
If the breach of contract has caused them a measurable financial loss, employees can also sue for damages, either in industrial tribunals or in the ordinary courts.
Claims and awards
Industrial tribunal claims must normally be made within three months of the employment ending but civil court claims may be made up to six years from the breach of contract.
Awards for damages in industrial tribunals are limited to £25,000 but there is no limit in the ordinary courts.
If employees are unable to seek damages because they have not suffered financial loss, the court may require the employer to abide by the original contract.
Contracts
You can consider terminating the original contract (dismissing the employee), provided you give the required notice. You should provide the minimum statutory notice period, or the notice specified in the employment contract, whichever is longer. See how to issue the correct periods of notice.
You can offer a new, revised contract to the dismissed employee. If the employee believes the dismissal was unfair, and they have one year or more of continuous employment with you, they may complain to an industrial tribunal. It would be up to the tribunal to decide whether the dismissal was fair or unfair.
The offer of a new contract could reduce the amount of a tribunal award because the employee's financial loss has been lessened by accepting the revised terms or because potentially - by rejecting the offer - they have not complied with their duty to lessen the loss. However, it would be sensible to consider seeking legal advice before any potential contract change.
You may have to follow collective redundancy consultation procedures, even when no reduction of the workforce is planned if you intend to impose new terms and conditions on 20 or more employees by terminating their existing contracts. Read more on the redundancy consultation process.
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Checklist: changing an employee's terms of employment
Find out the key steps to take and pitfalls to avoid when making changes to employment contracts.
You may want to change an employee's contract of employment for a number of reasons. Often the nature of your business has changed, perhaps through expansion, a change in economic circumstances, or a reorganisation.
Things to consider when making changes to an employment contract
Make sure you:
- Familiarise yourself thoroughly with the details of any existing contracts before considering what alterations you want to make.
- Consult your staff about any changes you wish to introduce and include their trade union or other elected representatives. Simply imposing changes could mean a claim by employees for damages in a civil court, industrial tribunal, or a constructive dismissal claim before an industrial tribunal.
- Discuss any changes with your staff in a thorough and detailed way, fully explaining the reasons for any planned alteration and taking into consideration the impact of the proposed changes in individual circumstances. Agreed changes should be confirmed in writing to the employee within one month.
- Try, if an agreement cannot be reached with an employee on changes, to negotiate a new contract.
- Document as much in writing as possible.
- Do not assume an employee's acceptance of changes imposed without agreement. An employee may accept the breach of contract, treat the breach as a termination of the contract, and bring a claim for constructive dismissal or continue working under protest making it clear that the change is being treated as a breach of contract. An employee may complain to an industrial tribunal within three months of the change being imposed. The employee would have to resign and not wait too long before doing so, otherwise, it could be taken as an affirmation of the breach.
Breach of contract cases can only be taken to the industrial tribunal if the employment has been terminated and the claim arises on termination of employment.
If the employee continues to work under protest, they may have to sue in a civil court unless the breach results in loss which can be pursued through the Employment Rights (Northern Ireland) Order 1996 part 4 Protection of Wages as an unlawful deduction from wages claim. Such claims would be made to the Industrial Tribunal.
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Advantages and disadvantages of harmonising terms of employment
How reducing differences in pay and other terms and conditions of employment can benefit your business.
In order to reduce or eliminate differences between categories of employees, such as manual and non-manual workers, you should consider harmonising terms and conditions of employment across your business.
Harmonisation is more likely to lead to an improvement in terms and conditions rather than reducing them.
This will not only make your pay and benefits seem fairer to your staff but also help to ensure your pay and benefits system is not unlawfully discriminatory.
If you intend to use harmonisation to reduce any benefit or entitlement, it is important that this change is agreed before implementation and that the previous guidance on varying a contract of employment is followed.
What terms and conditions of employment can be harmonised?
There are different terms and conditions of employment where harmonisation can be used to benefit your business, such as:
- pensions
- overtime
- notice periods
- hours of work
- shift premiums
- canteen facilities
- sick pay schemes
- redundancy terms
- layoffs and short-time working
- holiday entitlements and holiday pay
- payment systems and methods of payment
- time-recording procedures, eg clocking on and off
- fringe benefits, eg health insurance, and company cars
Advantages of harmonisation
The benefits of harmonisation will vary from business to business but may include:
- improved productivity
- more efficient administration
- improved recruitment and retention of employees
- better relationships between different grades of staff
Disadvantages of harmonisation
You may encounter certain problems when introducing harmonisation to your business, such as:
- increased wages bill and pension scheme contributions
- manager and employee resistance to changes to their status or working conditions, especially if they feel they won't personally benefit
- employee management problems if traditional controls are removed, such as clocking on and off
Harmonisation following the transfer of employees into your business
If you buy another business, the rights of any employees who transfer as part of the purchase are protected under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). Employees who transfer to your business do so with their pre-existing terms and conditions intact.
You must not change transferred employees' terms and conditions simply to harmonise them with those of your existing staff.
For more information, see responsibilities to employees if you buy or sell a business.
Introducing harmonisation
For harmonisation to succeed in your business, senior managers must be committed. Involve managers, employees, and - if applicable - workplace representatives both before you finalise any harmonisation programme and during its introduction.
Work out the costs and possible benefits of harmonisation and consider whether any of the costs will be offset by changes in working practices.
You will also need to:
- set a realistic timescale for the introduction of harmonisation
- carry out any necessary training
- monitor and maintain the changes
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Checking the existing employment contract before making changes
In this guide:
- Change an employee's terms of employment
- Checking the existing employment contract before making changes
- Consulting employees about changes to their terms of employment
- Failure to agree to employment contract changes
- Checklist: changing an employee's terms of employment
- Advantages and disadvantages of harmonising terms of employment
Checking the existing employment contract before making changes
How to check the details of an existing employment contract.
Before you think about altering any staff contracts, make sure you know exactly what is in the original. Every employee has a contract as soon as they start working for you, even if it has never been written down.
In addition, employees who work for you for a month or more must be given a written statement of main employment particulars within two months of joining. It is not itself a contract, but it can provide evidence of the contract's terms if there is a dispute. Read more on the written statement.
A contract contains both express and implied terms.
Express terms
Express terms are those which are explicitly agreed between employer and employee, either in writing or orally.
They will be made clear in any letter of appointment or written or oral statement made by the employer and accepted by the employee. Express terms may also be written into an individual contract based on other documents such as collective agreements and company handbooks.
Implied terms
Implied terms are not spelled out in a contract in some cases, because they are considered too obvious to mention. For example, if you offer someone a job, it is implied that they will not steal from the company. Another implied term is that the employer will provide a safe working environment.
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Consulting employees about changes to their terms of employment
When and how to consult employees and their representatives.
Some contracts may contain terms that allow employers to make changes in working conditions. These should be reasonable, for example performing additional tasks to reflect seasonal fluctuations in demand. Do not rely on such terms to make more fundamental changes because your employee may then claim the contract has been breached and may make various legal claims against you.
If you impose changes without an agreement, there will be a breach of contract. If the breach is a fundamental one eg a significant change in pay, an employee could resign and regard themselves as having been given no other choice but to do so. If they have more than one year of continuous employment with you, they can claim unfair constructive dismissal in an industrial tribunal. Damages for financial loss, for example, may also be sought in the civil courts if they have under a year of continuous service with you.
If you want to change terms or conditions in a collective agreement with a trade union that you formally recognise, you should always consult with the Trade Union to reach an agreement.
Consultation should be detailed and undertaken with a view to reaching an agreement and you should fully explain the reasons for any changes.
ICE Regulations
The Information and Consultation of Employees (ICE) Regulations give employees in companies with 50 or more employees the right to request to be informed and consulted about significant developments in the workplace. If 10% or more of employees (subject to a minimum of 15 and a maximum of 2,500) make a valid request, businesses are required to negotiate a procedure for informing and consulting with employees.
TICE Regulations
The Transnational Information and Consultation of Employees (TICE) Regulations give employees in multinational companies the right to be represented on a European Works Council (EWC).
EWCs are designed to allow employees in different European Economic Area (EEA) states to be informed and consulted on transnational issues affecting the company. If your business has 1,000 or more employees and at least 150 employees in each of two or more EEA states, you may be subject to the legislation on transnational information and consultation.
Following the UK's withdrawal from the EU, the government has amended the TICE Regulations so that:
- No new requests to set up an EWC or Information and Consultation procedure can be made by people employed in the UK.
- Provisions relevant to the ongoing operation of existing EWCs will remain in force.
- Requests for information or to establish EWCs or Information and Consultation procedures made but not completed before the UK's withdrawal from the EU will be allowed to complete.
See how to inform and consult your employees.
Consultation can take place on a one-to-one basis or in the form of group briefings. Whichever method you choose, you should provide an opportunity for employees to ask questions. Be prepared to answer these questions and ensure employees have the relevant information they need to prepare for the meeting. Always consider an individual's particular circumstances.
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Failure to agree to employment contract changes
What to do if you can't agree changes to employment contracts with employees.
Sometimes, despite negotiation, you may not be able to reach an agreement with an employee over changes to a contract.
But if you impose changes without agreement, there will be a breach of contract.
As noted in the previous page, if the breach of contract is a fundamental one - for instance if it involves a significant change in pay or working hours - an employee could resign and regard themselves as having been given no other choice than to do so ('constructively dismissed'). If they have one year or more of continuous employment with you, they will be able to claim unfair constructive dismissal in an industrial tribunal.
If the breach of contract has caused them a measurable financial loss, employees can also sue for damages, either in industrial tribunals or in the ordinary courts.
Claims and awards
Industrial tribunal claims must normally be made within three months of the employment ending but civil court claims may be made up to six years from the breach of contract.
Awards for damages in industrial tribunals are limited to £25,000 but there is no limit in the ordinary courts.
If employees are unable to seek damages because they have not suffered financial loss, the court may require the employer to abide by the original contract.
Contracts
You can consider terminating the original contract (dismissing the employee), provided you give the required notice. You should provide the minimum statutory notice period, or the notice specified in the employment contract, whichever is longer. See how to issue the correct periods of notice.
You can offer a new, revised contract to the dismissed employee. If the employee believes the dismissal was unfair, and they have one year or more of continuous employment with you, they may complain to an industrial tribunal. It would be up to the tribunal to decide whether the dismissal was fair or unfair.
The offer of a new contract could reduce the amount of a tribunal award because the employee's financial loss has been lessened by accepting the revised terms or because potentially - by rejecting the offer - they have not complied with their duty to lessen the loss. However, it would be sensible to consider seeking legal advice before any potential contract change.
You may have to follow collective redundancy consultation procedures, even when no reduction of the workforce is planned if you intend to impose new terms and conditions on 20 or more employees by terminating their existing contracts. Read more on the redundancy consultation process.
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Checklist: changing an employee's terms of employment
Find out the key steps to take and pitfalls to avoid when making changes to employment contracts.
You may want to change an employee's contract of employment for a number of reasons. Often the nature of your business has changed, perhaps through expansion, a change in economic circumstances, or a reorganisation.
Things to consider when making changes to an employment contract
Make sure you:
- Familiarise yourself thoroughly with the details of any existing contracts before considering what alterations you want to make.
- Consult your staff about any changes you wish to introduce and include their trade union or other elected representatives. Simply imposing changes could mean a claim by employees for damages in a civil court, industrial tribunal, or a constructive dismissal claim before an industrial tribunal.
- Discuss any changes with your staff in a thorough and detailed way, fully explaining the reasons for any planned alteration and taking into consideration the impact of the proposed changes in individual circumstances. Agreed changes should be confirmed in writing to the employee within one month.
- Try, if an agreement cannot be reached with an employee on changes, to negotiate a new contract.
- Document as much in writing as possible.
- Do not assume an employee's acceptance of changes imposed without agreement. An employee may accept the breach of contract, treat the breach as a termination of the contract, and bring a claim for constructive dismissal or continue working under protest making it clear that the change is being treated as a breach of contract. An employee may complain to an industrial tribunal within three months of the change being imposed. The employee would have to resign and not wait too long before doing so, otherwise, it could be taken as an affirmation of the breach.
Breach of contract cases can only be taken to the industrial tribunal if the employment has been terminated and the claim arises on termination of employment.
If the employee continues to work under protest, they may have to sue in a civil court unless the breach results in loss which can be pursued through the Employment Rights (Northern Ireland) Order 1996 part 4 Protection of Wages as an unlawful deduction from wages claim. Such claims would be made to the Industrial Tribunal.
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Advantages and disadvantages of harmonising terms of employment
How reducing differences in pay and other terms and conditions of employment can benefit your business.
In order to reduce or eliminate differences between categories of employees, such as manual and non-manual workers, you should consider harmonising terms and conditions of employment across your business.
Harmonisation is more likely to lead to an improvement in terms and conditions rather than reducing them.
This will not only make your pay and benefits seem fairer to your staff but also help to ensure your pay and benefits system is not unlawfully discriminatory.
If you intend to use harmonisation to reduce any benefit or entitlement, it is important that this change is agreed before implementation and that the previous guidance on varying a contract of employment is followed.
What terms and conditions of employment can be harmonised?
There are different terms and conditions of employment where harmonisation can be used to benefit your business, such as:
- pensions
- overtime
- notice periods
- hours of work
- shift premiums
- canteen facilities
- sick pay schemes
- redundancy terms
- layoffs and short-time working
- holiday entitlements and holiday pay
- payment systems and methods of payment
- time-recording procedures, eg clocking on and off
- fringe benefits, eg health insurance, and company cars
Advantages of harmonisation
The benefits of harmonisation will vary from business to business but may include:
- improved productivity
- more efficient administration
- improved recruitment and retention of employees
- better relationships between different grades of staff
Disadvantages of harmonisation
You may encounter certain problems when introducing harmonisation to your business, such as:
- increased wages bill and pension scheme contributions
- manager and employee resistance to changes to their status or working conditions, especially if they feel they won't personally benefit
- employee management problems if traditional controls are removed, such as clocking on and off
Harmonisation following the transfer of employees into your business
If you buy another business, the rights of any employees who transfer as part of the purchase are protected under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). Employees who transfer to your business do so with their pre-existing terms and conditions intact.
You must not change transferred employees' terms and conditions simply to harmonise them with those of your existing staff.
For more information, see responsibilities to employees if you buy or sell a business.
Introducing harmonisation
For harmonisation to succeed in your business, senior managers must be committed. Involve managers, employees, and - if applicable - workplace representatives both before you finalise any harmonisation programme and during its introduction.
Work out the costs and possible benefits of harmonisation and consider whether any of the costs will be offset by changes in working practices.
You will also need to:
- set a realistic timescale for the introduction of harmonisation
- carry out any necessary training
- monitor and maintain the changes
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Workers and employees: the differences
Workers and employees: the differences
Understand the terms 'employee' and 'worker' and what they mean for your business.
The terms employee and worker are defined in employment law. These definitions have been further refined by case law that has evolved over many years.
All employees are entitled to employment protection rights - though some rights require a minimum period of continuous service. See continuous employment and employee rights.
A number of core employment rights, such as the national minimum wage and regulations on working time, including rest and paid annual leave, are also available to the wider category who qualify as workers.
Contracts
A person's employment status will depend on whether their contract is:
- a contract of service, ie employment (employee)
- a contract for the personal performance of work (worker)
- a contract for services (self-employed).
Employee
An employee is someone who works for you under the terms of an employment contract. A contract of employment could be written, oral, or implied. Note that partners in firms are not usually employees, they are people carrying on a business with a view to profit; this is entirely different to an employment relationship. However a 'salaried partner' might have employment status or be an employee.
Worker
The category of worker is wider and includes any individual person who works for you, whether under an employment contract or other type of contract, but is not self-employed. This category can include casual workers, agency workers, or some freelance workers but the terms of the contract will determine their employment status.
Casual working in general
The word 'casual' is not a legal term. It is important to note that because someone is termed a 'casual worker' it does not mean that they cannot have any employment rights. The word 'casual' is not in the Employment Rights (NI) Order 1996. Each case depends on its facts; see the five key tests below.
The law when determining someone's employment status
For the purposes of income tax and National Insurance contributions (NICs), the agency (when acting as an employment business) providing an agency worker or casual worker is responsible for operating PAYE (Pay As You Earn) and accounting for NICs for that worker.
If there is a dispute about employment status and employment rights (or taxation), this can ultimately only be decided by the courts. The courts have devised a number of tests that examine the individual's circumstances and consider all aspects of the relationship - including what a contract may or may not say - to establish employment status.
Five key tests when legally determining employment status
There are five key tests the courts will consider:
- control - whether you as an employer can instruct them how and which tasks to perform
- integration - whether they are an integral part of your organisation
- mutuality of obligations - whether they are obliged to carry out the work offered, and whether you are obliged to offer work to them
- substitution - whether someone else can be sent by the worker to do the job
- economic reality - whether they are in business on their own account, eg where they bear the financial risks of failure to deliver the service or can profit from their own sound management of the task
Recent trends have been towards the application of a 'multiple test' which takes account of all relevant factors. However, if you are unsure of the employment status of someone who works for you or have concerns, you should seek advice.
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Employment status: self-employed and contractors
Determine if you are viewed as self-employed and how this affects your business.
Whether you can be classed as self-employed - as opposed to an employee or a worker - often depends on the level of your independence. Genuinely self-employed individuals can exercise a large degree of flexibility and control over how, if, and when they work. They are generally able to send someone else to do the work without significant restrictions. It is a category that includes those who run and manage their own business or work. As the individuals are in business for themselves, they generally do not have access to statutory employment rights as they have the freedom to set their own terms and conditions.
Employment cases and classifying the self-employed
There has been a significant rise in new forms of working, such as 'gig' work or work arranged through digital platforms. Gig workers are paid for the 'gigs' that they do ie they work on demand through short-term contracts and freelance working arrangements eg delivering food to creative marketing tasks. Digital platform work is where a platform company manages the demand and supply of paid work through an online platform, usually an app or website. Examples include musicians, taxi drivers, and cleaning.
The classification of people engaged in the 'gig economy' has been considered by tribunals and courts in recent years, most notably when the Supreme Court ruled that Über drivers were 'workers' rather than 'self-employed independent contractors'. Other cases, through the Supreme Court such as Deliveroo, held that the individuals working for the platform were self-employed.
However, each case is examined on the specific facts, as seen in the Christopher Johnson v Transopco UK Ltd employment case. Whilst it was acknowledged there was an obligation of personal service, on consideration of all the facts, it was determined that Mr Johnson was not a worker. The government has recognised the challenges of the current system but concluded the risks of legislative reform outweighed the benefits.
Indicators of self-employment
Although there is no individual test that is decisive, you're likely to be classed as self-employed if you:
- have the final say in how your business is run
- risk your own money in the business
- are responsible for the losses as well as profits of your business
- provide the main items of equipment you need to do your job
- could send a substitute or are free to hire other people on your own terms to do the work you have taken on and pay them at your own expense
- are responsible for correcting unsatisfactory work in your own time and at your own expense
- have the ability to work for others at the same time as providing services for a particular employer
You can be employed and self-employed at the same time. For example, you may work for an employer during the day but run your own part-time business in the evening. However, there are clear legal risks to you remaining a day employee if your part-time evening business could be considered to be in competition with your day employment.
You must tell HM Revenue & Customs (HMRC) you are self-employed within three months of the end of the calendar month in which you became self-employed. If you don't, you could face a penalty.
Contractors
A contractor can be:
- self-employed
- have the employment status of a worker
- have the employment status of an employee if they work for a client and are employed by an agency
There is a special scheme for self-employed contractors and subcontractors working in the construction industry called the Construction Industry Scheme (CIS).
See using contractors and subcontractors.
If you sell your services through a third party, such as a limited company or partnership, IR35 rules may apply. Special rules also apply to individuals who provide services through a managed service company. Read more about IR35 and other special rules.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.
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Employment status of company directors
The legal status of company directors, their responsibilities, and tax requirements.
Executive directors of limited companies are classed as office holders for the purposes of tax and National Insurance contributions (NICs).
An office holder's earnings are automatically chargeable to tax as employment income and there is also a liability for Class 1 NICs.
Calculating NICs for directors
The rules for calculating NICs for directors are different to those for other employees. Class 1 employee and employer NICs must still be paid if the director earns over the primary threshold, but unlike employees, directors are taxed on a cumulative basis. This means that you have to recalculate their NICs every time they are paid - based on their total earnings to date.
For information on NICs for directors, see National Insurance rates and classes.
The employment status of directors (executive or non-executive) may be employed or self-employed, and will depend on the terms and conditions of their appointment.
Directors' responsibilities
However, regardless of their executive or non-executive status, company directors have a number of additional responsibilities under company law and in relation to the completion of self-assessment tax returns. Read more on limited company director responsibilities and running a company or partnership.
Self-employed people who convert their business to a limited company usually become directors of the company as well as employees of the company.
In employment law, a director of a limited company has the status of an office holder. While employees' rights and duties are defined by an employment contract, the rights and duties of an office holder are defined by the Companies Act 2006 and the Company Constitution (as per Companies Act 2006). Office holders are not usually covered by employment legislation unless specifically mentioned. See running a limited company.
However, it is not unusual for a company director to also have a contract of employment with the company and so be both an office holder and employee, and therefore benefit from the employment rights of an employee.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.
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Contractors, IR35 and other special rules
Understand the employment status of your contractors and the off-payroll working through an intermediary (IR35) rules.
There are special rules that apply to contracts where individuals provide their services to a client through a third party, such as their own limited company or partnership. There is also a special tax scheme for contractors and self-employed subcontractors in the construction industry. See using contractors and subcontractors.
Off-payroll working rules (IR35)
The off-payroll working rules make sure that a worker (sometimes known as a contractor) pays broadly the same Income Tax and National Insurance as an employee would.
Legislation for off-payroll working through an intermediary, commonly known as IR35, brings the tax paid on certain contracts in line with the tax paid by employees.
As an employer, you do not make deductions for PAYE (Pay As You Earn) or National Insurance contributions (NICs) from payments made under such a contract to an 'intermediary'.
See understanding off-payroll working (IR35).
Contractors and subcontractors in the construction industry
There is a special tax scheme for self-employed contractors and subcontractors working in the construction industry.
It does not apply to employees, who should be dealt with under the PAYE system.
See Construction Industry Scheme (CIS).
Managed service companies
A managed service company (MSC) is a form of intermediary company through which workers provide their services to end clients.
All payments received by individuals who provide services through an MSC are subject to PAYE and NICs. The legislation ensures that all workers operating through an MSC pay tax and NICs at the same rate as other employees.
Where PAYE and NICs debts are irrecoverable from the MSC they can be transferred to third parties. These third parties include:
- a director, or other office holder, or an associate of the MSC
- an MSC Provider, or the director or office holder, or an associate of the MSC Provider
- those that have directly or indirectly encouraged or been actively involved in the provision by the MSC of the services of the individual, or a director, or other office holder or associate of such a person
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Employment status: self-employed and contractors
Workers and employees: the differences
Understand the terms 'employee' and 'worker' and what they mean for your business.
The terms employee and worker are defined in employment law. These definitions have been further refined by case law that has evolved over many years.
All employees are entitled to employment protection rights - though some rights require a minimum period of continuous service. See continuous employment and employee rights.
A number of core employment rights, such as the national minimum wage and regulations on working time, including rest and paid annual leave, are also available to the wider category who qualify as workers.
Contracts
A person's employment status will depend on whether their contract is:
- a contract of service, ie employment (employee)
- a contract for the personal performance of work (worker)
- a contract for services (self-employed).
Employee
An employee is someone who works for you under the terms of an employment contract. A contract of employment could be written, oral, or implied. Note that partners in firms are not usually employees, they are people carrying on a business with a view to profit; this is entirely different to an employment relationship. However a 'salaried partner' might have employment status or be an employee.
Worker
The category of worker is wider and includes any individual person who works for you, whether under an employment contract or other type of contract, but is not self-employed. This category can include casual workers, agency workers, or some freelance workers but the terms of the contract will determine their employment status.
Casual working in general
The word 'casual' is not a legal term. It is important to note that because someone is termed a 'casual worker' it does not mean that they cannot have any employment rights. The word 'casual' is not in the Employment Rights (NI) Order 1996. Each case depends on its facts; see the five key tests below.
The law when determining someone's employment status
For the purposes of income tax and National Insurance contributions (NICs), the agency (when acting as an employment business) providing an agency worker or casual worker is responsible for operating PAYE (Pay As You Earn) and accounting for NICs for that worker.
If there is a dispute about employment status and employment rights (or taxation), this can ultimately only be decided by the courts. The courts have devised a number of tests that examine the individual's circumstances and consider all aspects of the relationship - including what a contract may or may not say - to establish employment status.
Five key tests when legally determining employment status
There are five key tests the courts will consider:
- control - whether you as an employer can instruct them how and which tasks to perform
- integration - whether they are an integral part of your organisation
- mutuality of obligations - whether they are obliged to carry out the work offered, and whether you are obliged to offer work to them
- substitution - whether someone else can be sent by the worker to do the job
- economic reality - whether they are in business on their own account, eg where they bear the financial risks of failure to deliver the service or can profit from their own sound management of the task
Recent trends have been towards the application of a 'multiple test' which takes account of all relevant factors. However, if you are unsure of the employment status of someone who works for you or have concerns, you should seek advice.
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Employment status: self-employed and contractors
Determine if you are viewed as self-employed and how this affects your business.
Whether you can be classed as self-employed - as opposed to an employee or a worker - often depends on the level of your independence. Genuinely self-employed individuals can exercise a large degree of flexibility and control over how, if, and when they work. They are generally able to send someone else to do the work without significant restrictions. It is a category that includes those who run and manage their own business or work. As the individuals are in business for themselves, they generally do not have access to statutory employment rights as they have the freedom to set their own terms and conditions.
Employment cases and classifying the self-employed
There has been a significant rise in new forms of working, such as 'gig' work or work arranged through digital platforms. Gig workers are paid for the 'gigs' that they do ie they work on demand through short-term contracts and freelance working arrangements eg delivering food to creative marketing tasks. Digital platform work is where a platform company manages the demand and supply of paid work through an online platform, usually an app or website. Examples include musicians, taxi drivers, and cleaning.
The classification of people engaged in the 'gig economy' has been considered by tribunals and courts in recent years, most notably when the Supreme Court ruled that Über drivers were 'workers' rather than 'self-employed independent contractors'. Other cases, through the Supreme Court such as Deliveroo, held that the individuals working for the platform were self-employed.
However, each case is examined on the specific facts, as seen in the Christopher Johnson v Transopco UK Ltd employment case. Whilst it was acknowledged there was an obligation of personal service, on consideration of all the facts, it was determined that Mr Johnson was not a worker. The government has recognised the challenges of the current system but concluded the risks of legislative reform outweighed the benefits.
Indicators of self-employment
Although there is no individual test that is decisive, you're likely to be classed as self-employed if you:
- have the final say in how your business is run
- risk your own money in the business
- are responsible for the losses as well as profits of your business
- provide the main items of equipment you need to do your job
- could send a substitute or are free to hire other people on your own terms to do the work you have taken on and pay them at your own expense
- are responsible for correcting unsatisfactory work in your own time and at your own expense
- have the ability to work for others at the same time as providing services for a particular employer
You can be employed and self-employed at the same time. For example, you may work for an employer during the day but run your own part-time business in the evening. However, there are clear legal risks to you remaining a day employee if your part-time evening business could be considered to be in competition with your day employment.
You must tell HM Revenue & Customs (HMRC) you are self-employed within three months of the end of the calendar month in which you became self-employed. If you don't, you could face a penalty.
Contractors
A contractor can be:
- self-employed
- have the employment status of a worker
- have the employment status of an employee if they work for a client and are employed by an agency
There is a special scheme for self-employed contractors and subcontractors working in the construction industry called the Construction Industry Scheme (CIS).
See using contractors and subcontractors.
If you sell your services through a third party, such as a limited company or partnership, IR35 rules may apply. Special rules also apply to individuals who provide services through a managed service company. Read more about IR35 and other special rules.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.
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Employment status of company directors
The legal status of company directors, their responsibilities, and tax requirements.
Executive directors of limited companies are classed as office holders for the purposes of tax and National Insurance contributions (NICs).
An office holder's earnings are automatically chargeable to tax as employment income and there is also a liability for Class 1 NICs.
Calculating NICs for directors
The rules for calculating NICs for directors are different to those for other employees. Class 1 employee and employer NICs must still be paid if the director earns over the primary threshold, but unlike employees, directors are taxed on a cumulative basis. This means that you have to recalculate their NICs every time they are paid - based on their total earnings to date.
For information on NICs for directors, see National Insurance rates and classes.
The employment status of directors (executive or non-executive) may be employed or self-employed, and will depend on the terms and conditions of their appointment.
Directors' responsibilities
However, regardless of their executive or non-executive status, company directors have a number of additional responsibilities under company law and in relation to the completion of self-assessment tax returns. Read more on limited company director responsibilities and running a company or partnership.
Self-employed people who convert their business to a limited company usually become directors of the company as well as employees of the company.
In employment law, a director of a limited company has the status of an office holder. While employees' rights and duties are defined by an employment contract, the rights and duties of an office holder are defined by the Companies Act 2006 and the Company Constitution (as per Companies Act 2006). Office holders are not usually covered by employment legislation unless specifically mentioned. See running a limited company.
However, it is not unusual for a company director to also have a contract of employment with the company and so be both an office holder and employee, and therefore benefit from the employment rights of an employee.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.
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Contractors, IR35 and other special rules
Understand the employment status of your contractors and the off-payroll working through an intermediary (IR35) rules.
There are special rules that apply to contracts where individuals provide their services to a client through a third party, such as their own limited company or partnership. There is also a special tax scheme for contractors and self-employed subcontractors in the construction industry. See using contractors and subcontractors.
Off-payroll working rules (IR35)
The off-payroll working rules make sure that a worker (sometimes known as a contractor) pays broadly the same Income Tax and National Insurance as an employee would.
Legislation for off-payroll working through an intermediary, commonly known as IR35, brings the tax paid on certain contracts in line with the tax paid by employees.
As an employer, you do not make deductions for PAYE (Pay As You Earn) or National Insurance contributions (NICs) from payments made under such a contract to an 'intermediary'.
See understanding off-payroll working (IR35).
Contractors and subcontractors in the construction industry
There is a special tax scheme for self-employed contractors and subcontractors working in the construction industry.
It does not apply to employees, who should be dealt with under the PAYE system.
See Construction Industry Scheme (CIS).
Managed service companies
A managed service company (MSC) is a form of intermediary company through which workers provide their services to end clients.
All payments received by individuals who provide services through an MSC are subject to PAYE and NICs. The legislation ensures that all workers operating through an MSC pay tax and NICs at the same rate as other employees.
Where PAYE and NICs debts are irrecoverable from the MSC they can be transferred to third parties. These third parties include:
- a director, or other office holder, or an associate of the MSC
- an MSC Provider, or the director or office holder, or an associate of the MSC Provider
- those that have directly or indirectly encouraged or been actively involved in the provision by the MSC of the services of the individual, or a director, or other office holder or associate of such a person
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/content/contractors-ir35-and-other-special-rules
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Employment status of company directors
Workers and employees: the differences
Understand the terms 'employee' and 'worker' and what they mean for your business.
The terms employee and worker are defined in employment law. These definitions have been further refined by case law that has evolved over many years.
All employees are entitled to employment protection rights - though some rights require a minimum period of continuous service. See continuous employment and employee rights.
A number of core employment rights, such as the national minimum wage and regulations on working time, including rest and paid annual leave, are also available to the wider category who qualify as workers.
Contracts
A person's employment status will depend on whether their contract is:
- a contract of service, ie employment (employee)
- a contract for the personal performance of work (worker)
- a contract for services (self-employed).
Employee
An employee is someone who works for you under the terms of an employment contract. A contract of employment could be written, oral, or implied. Note that partners in firms are not usually employees, they are people carrying on a business with a view to profit; this is entirely different to an employment relationship. However a 'salaried partner' might have employment status or be an employee.
Worker
The category of worker is wider and includes any individual person who works for you, whether under an employment contract or other type of contract, but is not self-employed. This category can include casual workers, agency workers, or some freelance workers but the terms of the contract will determine their employment status.
Casual working in general
The word 'casual' is not a legal term. It is important to note that because someone is termed a 'casual worker' it does not mean that they cannot have any employment rights. The word 'casual' is not in the Employment Rights (NI) Order 1996. Each case depends on its facts; see the five key tests below.
The law when determining someone's employment status
For the purposes of income tax and National Insurance contributions (NICs), the agency (when acting as an employment business) providing an agency worker or casual worker is responsible for operating PAYE (Pay As You Earn) and accounting for NICs for that worker.
If there is a dispute about employment status and employment rights (or taxation), this can ultimately only be decided by the courts. The courts have devised a number of tests that examine the individual's circumstances and consider all aspects of the relationship - including what a contract may or may not say - to establish employment status.
Five key tests when legally determining employment status
There are five key tests the courts will consider:
- control - whether you as an employer can instruct them how and which tasks to perform
- integration - whether they are an integral part of your organisation
- mutuality of obligations - whether they are obliged to carry out the work offered, and whether you are obliged to offer work to them
- substitution - whether someone else can be sent by the worker to do the job
- economic reality - whether they are in business on their own account, eg where they bear the financial risks of failure to deliver the service or can profit from their own sound management of the task
Recent trends have been towards the application of a 'multiple test' which takes account of all relevant factors. However, if you are unsure of the employment status of someone who works for you or have concerns, you should seek advice.
Developed withActionsAlso on this sitePrimary parentContent category
Source URL
/content/workers-and-employees-differences
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Employment status: self-employed and contractors
Determine if you are viewed as self-employed and how this affects your business.
Whether you can be classed as self-employed - as opposed to an employee or a worker - often depends on the level of your independence. Genuinely self-employed individuals can exercise a large degree of flexibility and control over how, if, and when they work. They are generally able to send someone else to do the work without significant restrictions. It is a category that includes those who run and manage their own business or work. As the individuals are in business for themselves, they generally do not have access to statutory employment rights as they have the freedom to set their own terms and conditions.
Employment cases and classifying the self-employed
There has been a significant rise in new forms of working, such as 'gig' work or work arranged through digital platforms. Gig workers are paid for the 'gigs' that they do ie they work on demand through short-term contracts and freelance working arrangements eg delivering food to creative marketing tasks. Digital platform work is where a platform company manages the demand and supply of paid work through an online platform, usually an app or website. Examples include musicians, taxi drivers, and cleaning.
The classification of people engaged in the 'gig economy' has been considered by tribunals and courts in recent years, most notably when the Supreme Court ruled that Über drivers were 'workers' rather than 'self-employed independent contractors'. Other cases, through the Supreme Court such as Deliveroo, held that the individuals working for the platform were self-employed.
However, each case is examined on the specific facts, as seen in the Christopher Johnson v Transopco UK Ltd employment case. Whilst it was acknowledged there was an obligation of personal service, on consideration of all the facts, it was determined that Mr Johnson was not a worker. The government has recognised the challenges of the current system but concluded the risks of legislative reform outweighed the benefits.
Indicators of self-employment
Although there is no individual test that is decisive, you're likely to be classed as self-employed if you:
- have the final say in how your business is run
- risk your own money in the business
- are responsible for the losses as well as profits of your business
- provide the main items of equipment you need to do your job
- could send a substitute or are free to hire other people on your own terms to do the work you have taken on and pay them at your own expense
- are responsible for correcting unsatisfactory work in your own time and at your own expense
- have the ability to work for others at the same time as providing services for a particular employer
You can be employed and self-employed at the same time. For example, you may work for an employer during the day but run your own part-time business in the evening. However, there are clear legal risks to you remaining a day employee if your part-time evening business could be considered to be in competition with your day employment.
You must tell HM Revenue & Customs (HMRC) you are self-employed within three months of the end of the calendar month in which you became self-employed. If you don't, you could face a penalty.
Contractors
A contractor can be:
- self-employed
- have the employment status of a worker
- have the employment status of an employee if they work for a client and are employed by an agency
There is a special scheme for self-employed contractors and subcontractors working in the construction industry called the Construction Industry Scheme (CIS).
See using contractors and subcontractors.
If you sell your services through a third party, such as a limited company or partnership, IR35 rules may apply. Special rules also apply to individuals who provide services through a managed service company. Read more about IR35 and other special rules.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.
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Source URL
/content/employment-status-self-employed-and-contractors
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Employment status of company directors
The legal status of company directors, their responsibilities, and tax requirements.
Executive directors of limited companies are classed as office holders for the purposes of tax and National Insurance contributions (NICs).
An office holder's earnings are automatically chargeable to tax as employment income and there is also a liability for Class 1 NICs.
Calculating NICs for directors
The rules for calculating NICs for directors are different to those for other employees. Class 1 employee and employer NICs must still be paid if the director earns over the primary threshold, but unlike employees, directors are taxed on a cumulative basis. This means that you have to recalculate their NICs every time they are paid - based on their total earnings to date.
For information on NICs for directors, see National Insurance rates and classes.
The employment status of directors (executive or non-executive) may be employed or self-employed, and will depend on the terms and conditions of their appointment.
Directors' responsibilities
However, regardless of their executive or non-executive status, company directors have a number of additional responsibilities under company law and in relation to the completion of self-assessment tax returns. Read more on limited company director responsibilities and running a company or partnership.
Self-employed people who convert their business to a limited company usually become directors of the company as well as employees of the company.
In employment law, a director of a limited company has the status of an office holder. While employees' rights and duties are defined by an employment contract, the rights and duties of an office holder are defined by the Companies Act 2006 and the Company Constitution (as per Companies Act 2006). Office holders are not usually covered by employment legislation unless specifically mentioned. See running a limited company.
However, it is not unusual for a company director to also have a contract of employment with the company and so be both an office holder and employee, and therefore benefit from the employment rights of an employee.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.
Developed withAlso on this sitePrimary parentContent category
Source URL
/content/employment-status-company-directors
Links
Contractors, IR35 and other special rules
Understand the employment status of your contractors and the off-payroll working through an intermediary (IR35) rules.
There are special rules that apply to contracts where individuals provide their services to a client through a third party, such as their own limited company or partnership. There is also a special tax scheme for contractors and self-employed subcontractors in the construction industry. See using contractors and subcontractors.
Off-payroll working rules (IR35)
The off-payroll working rules make sure that a worker (sometimes known as a contractor) pays broadly the same Income Tax and National Insurance as an employee would.
Legislation for off-payroll working through an intermediary, commonly known as IR35, brings the tax paid on certain contracts in line with the tax paid by employees.
As an employer, you do not make deductions for PAYE (Pay As You Earn) or National Insurance contributions (NICs) from payments made under such a contract to an 'intermediary'.
See understanding off-payroll working (IR35).
Contractors and subcontractors in the construction industry
There is a special tax scheme for self-employed contractors and subcontractors working in the construction industry.
It does not apply to employees, who should be dealt with under the PAYE system.
See Construction Industry Scheme (CIS).
Managed service companies
A managed service company (MSC) is a form of intermediary company through which workers provide their services to end clients.
All payments received by individuals who provide services through an MSC are subject to PAYE and NICs. The legislation ensures that all workers operating through an MSC pay tax and NICs at the same rate as other employees.
Where PAYE and NICs debts are irrecoverable from the MSC they can be transferred to third parties. These third parties include:
- a director, or other office holder, or an associate of the MSC
- an MSC Provider, or the director or office holder, or an associate of the MSC Provider
- those that have directly or indirectly encouraged or been actively involved in the provision by the MSC of the services of the individual, or a director, or other office holder or associate of such a person
Developed withActionsAlso on this sitePrimary parentContent category
Source URL
/content/contractors-ir35-and-other-special-rules
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Contractors, IR35 and other special rules
Workers and employees: the differences
Understand the terms 'employee' and 'worker' and what they mean for your business.
The terms employee and worker are defined in employment law. These definitions have been further refined by case law that has evolved over many years.
All employees are entitled to employment protection rights - though some rights require a minimum period of continuous service. See continuous employment and employee rights.
A number of core employment rights, such as the national minimum wage and regulations on working time, including rest and paid annual leave, are also available to the wider category who qualify as workers.
Contracts
A person's employment status will depend on whether their contract is:
- a contract of service, ie employment (employee)
- a contract for the personal performance of work (worker)
- a contract for services (self-employed).
Employee
An employee is someone who works for you under the terms of an employment contract. A contract of employment could be written, oral, or implied. Note that partners in firms are not usually employees, they are people carrying on a business with a view to profit; this is entirely different to an employment relationship. However a 'salaried partner' might have employment status or be an employee.
Worker
The category of worker is wider and includes any individual person who works for you, whether under an employment contract or other type of contract, but is not self-employed. This category can include casual workers, agency workers, or some freelance workers but the terms of the contract will determine their employment status.
Casual working in general
The word 'casual' is not a legal term. It is important to note that because someone is termed a 'casual worker' it does not mean that they cannot have any employment rights. The word 'casual' is not in the Employment Rights (NI) Order 1996. Each case depends on its facts; see the five key tests below.
The law when determining someone's employment status
For the purposes of income tax and National Insurance contributions (NICs), the agency (when acting as an employment business) providing an agency worker or casual worker is responsible for operating PAYE (Pay As You Earn) and accounting for NICs for that worker.
If there is a dispute about employment status and employment rights (or taxation), this can ultimately only be decided by the courts. The courts have devised a number of tests that examine the individual's circumstances and consider all aspects of the relationship - including what a contract may or may not say - to establish employment status.
Five key tests when legally determining employment status
There are five key tests the courts will consider:
- control - whether you as an employer can instruct them how and which tasks to perform
- integration - whether they are an integral part of your organisation
- mutuality of obligations - whether they are obliged to carry out the work offered, and whether you are obliged to offer work to them
- substitution - whether someone else can be sent by the worker to do the job
- economic reality - whether they are in business on their own account, eg where they bear the financial risks of failure to deliver the service or can profit from their own sound management of the task
Recent trends have been towards the application of a 'multiple test' which takes account of all relevant factors. However, if you are unsure of the employment status of someone who works for you or have concerns, you should seek advice.
Developed withActionsAlso on this sitePrimary parentContent category
Source URL
/content/workers-and-employees-differences
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Employment status: self-employed and contractors
Determine if you are viewed as self-employed and how this affects your business.
Whether you can be classed as self-employed - as opposed to an employee or a worker - often depends on the level of your independence. Genuinely self-employed individuals can exercise a large degree of flexibility and control over how, if, and when they work. They are generally able to send someone else to do the work without significant restrictions. It is a category that includes those who run and manage their own business or work. As the individuals are in business for themselves, they generally do not have access to statutory employment rights as they have the freedom to set their own terms and conditions.
Employment cases and classifying the self-employed
There has been a significant rise in new forms of working, such as 'gig' work or work arranged through digital platforms. Gig workers are paid for the 'gigs' that they do ie they work on demand through short-term contracts and freelance working arrangements eg delivering food to creative marketing tasks. Digital platform work is where a platform company manages the demand and supply of paid work through an online platform, usually an app or website. Examples include musicians, taxi drivers, and cleaning.
The classification of people engaged in the 'gig economy' has been considered by tribunals and courts in recent years, most notably when the Supreme Court ruled that Über drivers were 'workers' rather than 'self-employed independent contractors'. Other cases, through the Supreme Court such as Deliveroo, held that the individuals working for the platform were self-employed.
However, each case is examined on the specific facts, as seen in the Christopher Johnson v Transopco UK Ltd employment case. Whilst it was acknowledged there was an obligation of personal service, on consideration of all the facts, it was determined that Mr Johnson was not a worker. The government has recognised the challenges of the current system but concluded the risks of legislative reform outweighed the benefits.
Indicators of self-employment
Although there is no individual test that is decisive, you're likely to be classed as self-employed if you:
- have the final say in how your business is run
- risk your own money in the business
- are responsible for the losses as well as profits of your business
- provide the main items of equipment you need to do your job
- could send a substitute or are free to hire other people on your own terms to do the work you have taken on and pay them at your own expense
- are responsible for correcting unsatisfactory work in your own time and at your own expense
- have the ability to work for others at the same time as providing services for a particular employer
You can be employed and self-employed at the same time. For example, you may work for an employer during the day but run your own part-time business in the evening. However, there are clear legal risks to you remaining a day employee if your part-time evening business could be considered to be in competition with your day employment.
You must tell HM Revenue & Customs (HMRC) you are self-employed within three months of the end of the calendar month in which you became self-employed. If you don't, you could face a penalty.
Contractors
A contractor can be:
- self-employed
- have the employment status of a worker
- have the employment status of an employee if they work for a client and are employed by an agency
There is a special scheme for self-employed contractors and subcontractors working in the construction industry called the Construction Industry Scheme (CIS).
See using contractors and subcontractors.
If you sell your services through a third party, such as a limited company or partnership, IR35 rules may apply. Special rules also apply to individuals who provide services through a managed service company. Read more about IR35 and other special rules.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.
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Source URL
/content/employment-status-self-employed-and-contractors
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Employment status of company directors
The legal status of company directors, their responsibilities, and tax requirements.
Executive directors of limited companies are classed as office holders for the purposes of tax and National Insurance contributions (NICs).
An office holder's earnings are automatically chargeable to tax as employment income and there is also a liability for Class 1 NICs.
Calculating NICs for directors
The rules for calculating NICs for directors are different to those for other employees. Class 1 employee and employer NICs must still be paid if the director earns over the primary threshold, but unlike employees, directors are taxed on a cumulative basis. This means that you have to recalculate their NICs every time they are paid - based on their total earnings to date.
For information on NICs for directors, see National Insurance rates and classes.
The employment status of directors (executive or non-executive) may be employed or self-employed, and will depend on the terms and conditions of their appointment.
Directors' responsibilities
However, regardless of their executive or non-executive status, company directors have a number of additional responsibilities under company law and in relation to the completion of self-assessment tax returns. Read more on limited company director responsibilities and running a company or partnership.
Self-employed people who convert their business to a limited company usually become directors of the company as well as employees of the company.
In employment law, a director of a limited company has the status of an office holder. While employees' rights and duties are defined by an employment contract, the rights and duties of an office holder are defined by the Companies Act 2006 and the Company Constitution (as per Companies Act 2006). Office holders are not usually covered by employment legislation unless specifically mentioned. See running a limited company.
However, it is not unusual for a company director to also have a contract of employment with the company and so be both an office holder and employee, and therefore benefit from the employment rights of an employee.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.
Developed withAlso on this sitePrimary parentContent category
Source URL
/content/employment-status-company-directors
Links
Contractors, IR35 and other special rules
Understand the employment status of your contractors and the off-payroll working through an intermediary (IR35) rules.
There are special rules that apply to contracts where individuals provide their services to a client through a third party, such as their own limited company or partnership. There is also a special tax scheme for contractors and self-employed subcontractors in the construction industry. See using contractors and subcontractors.
Off-payroll working rules (IR35)
The off-payroll working rules make sure that a worker (sometimes known as a contractor) pays broadly the same Income Tax and National Insurance as an employee would.
Legislation for off-payroll working through an intermediary, commonly known as IR35, brings the tax paid on certain contracts in line with the tax paid by employees.
As an employer, you do not make deductions for PAYE (Pay As You Earn) or National Insurance contributions (NICs) from payments made under such a contract to an 'intermediary'.
See understanding off-payroll working (IR35).
Contractors and subcontractors in the construction industry
There is a special tax scheme for self-employed contractors and subcontractors working in the construction industry.
It does not apply to employees, who should be dealt with under the PAYE system.
See Construction Industry Scheme (CIS).
Managed service companies
A managed service company (MSC) is a form of intermediary company through which workers provide their services to end clients.
All payments received by individuals who provide services through an MSC are subject to PAYE and NICs. The legislation ensures that all workers operating through an MSC pay tax and NICs at the same rate as other employees.
Where PAYE and NICs debts are irrecoverable from the MSC they can be transferred to third parties. These third parties include:
- a director, or other office holder, or an associate of the MSC
- an MSC Provider, or the director or office holder, or an associate of the MSC Provider
- those that have directly or indirectly encouraged or been actively involved in the provision by the MSC of the services of the individual, or a director, or other office holder or associate of such a person
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Retirement ages and procedures
Retirement ages and procedures
The procedures to follow when an employee retires.
Employees can generally retire when they want to.
Planning ahead
To help with your workforce planning, if you don't already do so, you should consider setting up regular individual informal workplace discussions with all employees.
Then, when you are having such discussions with older employees, you may get the opportunity to raise the issue of their future plans, which may include plans to retire.
However, any direct question such as "are you planning to retire in the near future?" is best avoided. If the employee indicates they wish to retire, there is no problem in you talking to them about the date of their retirement and any working arrangements leading up to it.
Retirement ages
You can only operate a compulsory retirement age if you can objectively justify it. Justification of direct age discrimination must be based in 'social policy objectives' such as those related to employment policy, the labour market or vocational training. This means that the aims must be of a 'public interest nature' rather than purely individual reasons particular to one employer's situation.
Compulsory retirement age
The first thing you would need to do is ask yourself why you need a compulsory retirement age. Set out your reasons clearly on paper.
You should then ask the following questions:
- Do you have real hard evidence which can justify your reasoning or is it just based on a preference or assumption?
- Are there easier, simpler non-discriminatory ways of achieving the same results?
As well as establishing a legitimate aim an employer would also need to demonstrate that the compulsory retirement age is a proportionate means of achieving that aim.
The test of objective justification is not an easy one to pass and it would be necessary to provide evidence if challenged at a tribunal (or under the Labour Relations Agency Arbitration Scheme which can now be used as an alternative forum for resolving disputes); assertions alone would not be enough.
Read further guidance on early retirement.
Read further guidance on working after State Pension age.
Retirement dismissals
If you do operate a compulsory retirement age that you can objectively justify, you must follow at least the minimum statutory disciplinary and dismissal procedure. This means:
- giving the employee plenty of notice of the date you intend to retire them
- arranging a meeting to discuss their retirement
- considering any request they make to work beyond the compulsory retirement
- allowing them an appeal if they do not accept your decision
You can also still dismiss an employee of any age on, for example, the grounds of:
- Capability, eg where they have been absent for a long time due to ill-health or - despite you giving them opportunities to improve - their performance is not up to standard. Good procedures are vital here. See the Labour Relations Agency's Code of Practice on disciplinary and grievance procedures.
- Redundancy, ie where there is no longer work for the employee to do.
Read more on dismissing employees.
Pay and pensions
Whatever date the employee retires, during the employee's final few weeks of work, you will also need to:
- calculate their final payment - see pay: employer obligations
- calculate any entitlements due under employee share or share option schemes - particularly relevant regarding early retirement
- check the rules of their pension scheme - see pensions and retirement
Emotional and practical issues
Even though an employee can generally choose when to retire, preparing for retirement may still be a difficult time emotionally for them.
Therefore, you should consider helping them in the run-up to their retirement - see providing support for a retiring employee.
Remember that you may also need to retrieve company property, eg security pass, company car, laptop computer.
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Pensions and retirement
Help your employees receive the appropriate state pension or workplace pension to which they are entitled.
When employees retire, make sure they receive any workplace pension(s) that they are due.
When employees reach their state pension age, they will need to make a claim for the state pension or consider the option to defer it.
State pension
Currently, the state pension age for men and women is 66 years old. This will increase to 67 years old between 2026 and 2028. Under current law, the state pension age is due to increase to 68 years old between 2044 and 2046. Following a recent review, the government has announced plans to bring this timetable forward. Proposed changes to the state pension age would increase it to age 68 years old between 2037 and 2039 - it would require approval by Parliament before that proposal is agreed.
You can check your state pension age.
Claiming state pension
It would be helpful to confirm that they have received a claim pack from The Northern Ireland Pension Centre, which will normally write to invite a claim around four months before a person reaches state pension age. A claim pack will be unavailable prior to the four-month period.
They will not get their state pension automatically and have to claim it. They should get a letter no later than two months before they reach state pension age, telling them what to do. If they have not received an invitation letter, but are within three months of reaching their state pension age, they can still make a claim. State pension can be claimed online, by telephone, or by post. The quickest way to get their state pension is to apply online.
There's a different way to claim state pension from abroad, including the Channel Islands.
If your employee hasn't received a claim pack or wants more information on the state pension, including how to defer it, they should contact The Pension Service. Northern Ireland Pension Centre contact details.
Workplace pensions
If you run a workplace scheme and your employee is a member of it, write to the trustees or managers of the scheme to let them know their retirement date. The trustees or managers will then:
- work out what the employee will be entitled to on retirement
- write to the employee shortly before retirement with details of any tax-free lump sum that they may be entitled to
- provide details of the amount of pension payable and the date at which the first payment is to be made
You will need to provide final earnings and contribution information to the scheme so that there is no delay in processing your employee's retirement from the scheme.
If your scheme is a money purchase arrangement run by a pension provider, eg an insurance company, the employee should be advised that they have the right to buy an annuity from a provider other than the one running the pension scheme. This is an alternative to receiving a pension from your scheme.
The options for money purchase funds and provider duties have changed. Individuals now have flexible options for using their pension pot, in addition to the option to select an annuity. Individuals should be advised that they may be able to transfer to a different provider if your current scheme doesn't offer their preferred option. Even if your scheme offers the option they want, they should always shop around to ensure that they are making the most of their money.
Pensions advice and guidance
Find free and impartial pension guidance from MoneyHelper's Pension Wise service.
If any employee thinks they may have lost track of an old pension from a previous workplace, they may find it helpful to contact the Pension Tracing Service.
Your employees may also benefit from regulated financial advice. Read MoneyHelper's guidance on choosing a financial adviser and use their retirement adviser directory, or use the Personal Finance Society's tool to find an adviser.
Providing employees with tax-free pensions advice
You may wish to consider providing this advice as an employee benefit. An Income Tax exemption is available to cover the first £500 worth of relevant pension advice provided to an employee. For further details see pensions advice provided by an employer: exemption from charge.
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Providing support for a retiring employee
How employers can help an employee when they are retiring.
Even though employees can generally choose when to retire, preparing for retirement may still be a difficult time emotionally and financially for them.
Facilitating the transition from employment to retirement
There are several ways in which you can help an employee make the transition from employment to retirement, including:
- Allowing them to gradually reduce their working hours for a period of time before their retirement. This will give the retiring employee a chance to develop other interests outside work. However, reducing working hours in the few years leading up to retirement could reduce the pension an employee would receive.
- Providing opportunities to attend a pre-retirement course for counselling and/or financial advice.
- Providing information on the state pension and other entitlements - see pensions and retirement.
- Organising a retirement party for them and buying them a retirement gift.
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