How to Avoid an ‘Uber’ Situation When Hiring Freelancers

As Uber’s impending court case proves, small businesses have to be certain they know who are employees and who are self-employed

How to Avoid an ‘Uber’ Situation When Hiring Freelancers

The genie is out of the bottle as an increasing number of people are recognising the benefits of working for themselves and are opting to become self-employed rather than be employed. It is a trend set to continue as we hear more and more talk about the gig economy and the ‘uberisation’ of the workplace. How we work is clearly changing and the growth in freelancer numbers is on the rise, with some 1.9 million freelancers operating in the UK today. However, it is a mixed blessing for employers.

The benefits of hiring freelancers

On the one hand freelance workers offer experience, expertise and knowledge and small businesses can glean the benefits without committing themselves to all the costs (and risks) that come with hiring a full time employee, such as NI contributions, holiday pay, sickness pay, maternity/paternity rights and so on.

They can help if your business is growing and you need help quickly, they can help if you need specialist skills or are facing a skills shortage. They can help if you need long term cover, need an injection of fresh ideas and approaches or have a crisis that needs handling.

Make sure everything is aboveboard

However, on the other hand, you need to be legally savvy when it comes to engaging freelancers and contractors as we have recently witnessed in the case of taxi firm Uber which is currently facing a tribunal as its drivers argue that they should be recognised as workers rather than self-employed. The result could have massive implications for contractors, freelancers and businesses.

As a business, if you get it wrong, there is a risk that you will be liable for any unpaid tax and NI contributions and you can also risk a claim for statutory employment rights from the worker.

In any investigation, the working practices carry more weight than the contractual agreement, so what is actually happening in practice, rather than what is written down will form the basis of any outcome if there was to be an investigation.

The situation

In the case of Uber, the company connects customers to drivers through its smartphone app which provides navigational support to drivers and charges customers for their journey. Uber subsequently pays its drivers a proportion of that journey fee. The growth of Uber as a business has been aided by its ability to build a large self-employed driver workforce, thereby allegedly avoiding the costs and other requirements of an employment relationship.

Uber drivers are arguing that they are not self-employed due to the level of control exerted over their work by Uber, in respect of the hours they work and what they can earn. However, Uber has engaged their “driver-partners” on a self-employed basis, and as such they are free to work as little or as often as they wish. But there are allegations of fixed routes and penalties for failing to accept jobs that point towards some degree of control exercised through a mobile app. Control is the crux of this case.

What could be the implications of a drivers’ victory?

If the drivers are successful and the court concludes that Uber drivers are workers, they would be entitled to significant worker benefits including minimum wage, holiday pay and other statutory benefits as well as protection rights. The case would also open the floodgates from other similar engagement platforms; in short, this is the most high profile court case concerning employment status in recent times. The result will set a precedent so we watch and wait.

Anyone engaging self-employed staff should ensure that their working practices reflect the fact that they are genuinely self-employed.

The message is clear. For any small business planning on taking on freelancers and contractors remember to:

1. Check out the freelancer’s legal position

All UK businesses have a legal duty to check that those who work for them are legally entitled to work in the country. This applies to freelancers, contractors and other flexible workers whose services the business buys into. If you engage a recruitment firm or other provider, such as an umbrella firm, they can conduct checks on your behalf.

2. Check out recruitment agencies

If you are planning on working with a recruitment agency to find freelancers and contractors then it pays to do your homework and look for an agency that is well versed in sourcing and placing freelancers and contractors within your sector or market.

3. Clarify rates

It is important that all parties agree a rate that works – for you as the small business and end-hirer, the recruiter and the freelancer. If you want the best you may have to be prepared to pay a good rate.

4. Determine employment status

It is important to clarify at the outset if the individual whose services you are buying is employed, and, if so, by whom. This is critical and the crux of Uber’s case. The answer will decide who bears liability and carries risk in the event of a dispute, say over an unfair or early contract termination. If the freelancer is set up as a sole trade or works via their own limited company, they are classed as self-employed. Others, who work through an umbrella company are employed by that umbrella company.

5. Think about outsourcing

Umbrella firms or outsourced employment providers provide their contractors and freelancers with an overarching employment contract which entitles them to a wide range of statutory benefits and rights.

Any disputes will be handled by the umbrella as the employer, rather than the recruitment agency or you as the small business end-hirer who is using that contractor’s skills and expertise. In the eyes of the law, the umbrella company is the employer and therefore bears full responsibility for the contractor. This reduces any risk for a small business client.

Freelancers are bringing huge benefits to small businesses but it’s crucial that you exercise caution and carry out due diligence before engaging them and avoid getting into an Uber situation.

Julia Kermode is chief executive of the Freelancer and Contractor Services Association (FCSA)

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