Businesses must not assume that just because there is a contractor’s agreement in place that the contractor is self-employed. Of course, if it is being alleged that a contractor is indeed self-employed, the existence of such a contract can only help. However, there are other considerations such as how the work is performed and the nature of the work being undertaken.
Where there is a contractor’s agreement, the business must ensure that the clauses are feasible. They should not be included just because that is what the business wants to see. The reality of the situation must be in accordance with the terms of the contract. Just because there is a clause allowing the contractor to put someone forward in his place does not mean that that is what will happen. If a company does not actually want anyone else doing the work then this type of clause may well appear to be a sham.
How much control does the contractor have over the way the work is carried out? Is the contractor, in reality, told how to carry out the work? Does the business have a say in the equipment and materials that are used? Does the company supply them rather than the contractor?
Other questions that need to be asked include – where is the work done? When is it carried out? What is the nature of the work? If the contractor is expected to work a 39-hour week on a regular basis this may point to the contractor as being an employee. A genuine contractor should be able to undertake work for more than one client. If he or she is working 39 hours a week it is questionable as to when they would be actually able to carry out this additional work.
Mutuality of 0bligation:
This is a legal term. It basically states that where a contract of employment exists, the employer is obliged to offer and the employee is obliged to accept work. This obligation does not, however, exist between a client and a self-employed contractor.
A contract stating that there is no mutuality of obligation is a useful tool but cannot be relied upon on a standalone basis. For example, what obligations exist for both parties between and at the end of contracts?
It is therefore important that the contract sets out the work that is to be performed. There shouldn’t be a clause in the contract enabling the business to ask the contractor to carry out jobs in addition to those stated in the contract. There should also not be any obligation on the part of the contractor to undertake work different to that defined within the terms of the contract.
Above all, the actual working practices of the business need to reflect the terms of the contract and vice versa. There is no point saying one thing and doing another.
Any business thinking of utilising contractors should use a well drafted contractors agreement. Make sure that they are professionally drafted and reflect the actual working practices of your business.
Businesses should consider carefully the positions and roles of all contractors, especially those working under the IR35 regulations. The reality of the situation may mean that contractors who are currently border line between being an employee and being self-employed have to be taken on as employees.
A business with concerns as to its responsibilities should always take advice both from its accountant and a solicitor.