There is a significant amount of interest in this topic at the moment, in the UK at least. This is because the “gig “economy, as it I known, is very much in the news, along with zero hours contracts.
Companies such as Uber and Deliveroo have been pilloried for not employing their workers, choosing instead to treat them as contractors
For me, this is an inevitable consequence of the stringent employment laws we have here, which assume that employers have a bottomless pit of money to take care of their staff.
And if a company is big and thriving, then this is usually a priority for them, so that they can attract and retain the best staff. But if you are a new, emerging company, struggling to make ends meet, this is much more difficult to achieve, and is not the first priority. Other things such as paying the salaries and rent often take a higher priority.
Again, I can only speak for the UK, but let me summarise some of the advantages and disadvantages of the situation here.
Disadvantages of employing staff
- You have to pay them for contracted hours, whether you have work for them or not.
- You contribute to their national insurance
- You collect taxes, report to the tax authorities
- You have to pay them for holidays, and for sickness
- You have to set up, manage and contribute to pension funds
- You have to pay and accommodate maternity, paternity and adoption pay
- If you no longer require their services, you must give them paid notice and pay them redundancy money
- It is almost impossible to remove an unsatisfactory employee
- They have very well protected employment rights. You can be taken to tribunal and fined heavily if you infringe them.
Advantages of employing staff
- They are always available to you alone
- They learn about the company
- You can plan growth and succession
Advantages of using contractors
- You are buying in specific expertise for the task
- You only pay them for hours worked
- You don’t contribute to their national insurance
- They organise their own taxes, and report to the tax authorities
- You don’t have to pay them for holidays, or sickness
- You don’t have to set up, manage and contribute to pension funds
- You don’t pay and accommodate maternity and paternity pay
- Redundancy is not an issue
- Nor is removing an unsatisfactory employee, you just don’t give them any more work
- They don’t have employment rights
Under the microscope
This is all under the microscope at the moment, with several cases being brought to Court by people claiming they are actually employees, not contractors. Therefore, they are demanding the same rights and benefits as employees.
The UK Inland Revenue (HMRC) test for deciding if someone is a contractor is based on whether;-
- The person can accept or refuse work
- They can hand that work off to another person
- They are not under the direct control of a manager or supervisor who is responsible for their workload, stipulating when a piece of work should be completed and how it should be carried out.
- If these conditions are fulfilled they will generally view the person as a contractor.
The rise of the contractor
I have commented for several years that many companies no longer want a large inflexible workforce, as they need to be more fleet of foot to keep up with changes in their markets. So, they will use contractors, and it will be incumbent on the workers to manage their own career and ensure they have the correct skills, that the arket wants. Companies will buy in specific expertise for the task.
Although the pace of change and new technology have caused much of this, it is also caused in part at least, by “The Law of Unintended Consequences “. Employment law is weighted so much in favour of the employee, that employers have been forced to seek a way around it.
I think it is only a matter of time until contractors are given some rights under employment law. This could be very tricky. because if we are not careful then arrangements with say, your solicitor or accountant, or the person you ask to repair something in your home, clean your windows, or work in your garden for a couple of hours a week, will all be subject to Government legislation.
However, using contractors is a step you may consider if you are starting a new company and the circumstances are right. But keep in mind you lose the advantages of building a loyal and committed workforce. And keep an eye on the legal and employment law situation, this may become fluid very soon.