As an expert HR consultant in Bury St Edmunds, I’ll explain why employment status matters more than you think and how to protect your business.
Many small business owners turn to freelancers for flexibility and specialist skills. It seems straightforward: you need a job done, they do it, and everyone’s happy. But what if the person you call a ‘freelancer’ is actually, in the eyes of the law, an employee?
This common oversight can lead to unexpected and costly problems for your business.
I see this confusion regularly in my work providing HR consultancy services in Bury St Edmunds. The lines between self-employed, worker, and employee can feel blurry, and relying solely on a contract can be a big mistake. The reality of the working relationship always trumps the label you give it, and misunderstanding this can put your business at significant risk.
Why employment status matters (and what it means for your bottom line)
In the UK, employment law recognises three main categories for people working in your business: employees, workers, and the self-employed. It sounds simple, but the boundaries can be incredibly blurry.
The biggest mistake I see business owners make is assuming a written contract is the final word. Unfortunately, it’s not. If the day-to-day reality of the relationship doesn’t match the contract, the law will look at the reality. And if your ‘freelancer’ is actually an employee or a worker, you could be facing some serious headaches:
- Unexpected tax bills: HMRC can come knocking for unpaid National Insurance and tax contributions.
- Claims for backdated rights: Your ‘freelancer’ could claim for things like holiday pay, sick pay, or even unfair dismissal – potentially going back years.
- Tribunal claims and penalties: Ending up in an employment tribunal is costly, stressful, and damaging to your reputation. Plus, there can be significant financial penalties.
What really determines employment status? It’s not just the contract.
So, if the contract isn’t the whole story, what is? Courts and tribunals look at a few key factors to determine the true nature of the working relationship. Think of these as the ‘reality checks’:
- Control: Who calls the shots? If you dictate when, where, and how the work is done, that points towards an employment relationship. Freelancers typically have more autonomy.
- Substitution: Can they send someone else to do the job? A genuine freelancer should have the right to send a suitably qualified substitute. If you insist on them personally doing the work, it looks more like employment.
- Mutuality of obligation: Is there an ongoing expectation of work being offered and accepted? Regular, consistent work over a long period can suggest an employment relationship, rather than a series of one-off projects.
- Integration: Are they treated like part of the team? Using your company email, attending team meetings, or using company equipment can blur the lines. Freelancers usually operate more independently.
- Financial risk: Does the individual have a genuine chance of making a profit or loss from their work? Employees don’t typically carry this risk, whereas a self-employed person does.
The grey areas are real (and often surprising)
Employment status isn’t always black and white; there are plenty of grey areas. This is why it’s so easy for businesses to get it wrong, even with the best intentions.
A classic example is the 2021 Supreme Court ruling on Uber drivers. Despite their contracts stating they were self-employed, the court found they were actually ‘workers’ due to the level of control Uber exercised. This meant they were entitled to rights like minimum wage and holiday pay.
This case, and many others, highlight a crucial point: simply labelling someone as a ‘freelancer’ in a contract won’t protect you if the day-to-day reality tells a different story. The law looks beyond the paperwork.
Proactive steps to protect your business
No business wants to end up in tribunal, or face unexpected tax demands. The good news is, you can take proactive steps to minimise these risks:
- Regular reviews: Periodically check your arrangements with freelancers. Has the relationship evolved since you first started working together?
- Align reality with paperwork: Make sure your working practices genuinely reflect what’s in your contracts. If there’s a mismatch, it’s time to adjust one or the other.
- Seek expert advice: Before a potential risk escalates into a claim or a penalty, get professional guidance. It’s far cheaper to get it right upfront than to fix it later.
Ready to explore how this could work for your business?
You don’t need to be an expert in employment law – that’s my job. If you’re like many business owners, you’ve got enough on your plate without worrying about complex HR rules.
If you’re unsure about your freelancer arrangements, or simply want a fresh pair of eyes to review your contracts and working practices, let’s have a confidential conversation.
As an outsourced HR consultant in Bury St Edmunds, I specialise in helping businesses like yours navigate these nuances, minimise risks, and ensure your people practices support your business goals, not hinder them.
Book a discovery call today, and let’s make sure your business is protected, so you can focus on what you do best.
