Vaughan Hart
Is it time to re-think employment status?
For decades, the construction industry has relied upon a flexible labour model. Direct employees work alongside agency labour, labour-only subcontractors, self-employed tradespeople, consultants and, increasingly, individuals engaged through umbrella companies and other intermediaries.
There are sound commercial reasons for this, especially as Construction is in the majority, project based. Workloads fluctuate, skills are required at different stages of a project and businesses need to be able to mobilise and demobilise labour quickly.
Although flexibility remains essential to the operation of any construction business, the concern, remains that in some parts of the industry the contractual model being used has become increasingly disconnected from the reality of the working relationship. This disconnect creates a potential risk.
CIS does not determine employment status
Perhaps the most common misunderstanding surrounds the Construction Industry Scheme.
There can be a tendency to assume that just because somebody who is registered under CIS is, by definition, self-employed, which is not the case.
CIS is principally a tax collection mechanism and does not determine an individual’ s employment status. Neither does the fact that somebody has a UTR, submits invoices, has been verified under CIS or even holds gross payment status automatically make them genuinely selfemployed.
The question should always be, what does the relationship actually look like in practice?
Consider an operative who works five days a week for the same contractor, is expected to attend at specified times, works under the direction of the contractor’ s management, uses equipment provided by the business, is integrated into its workforce and is expected personally to undertake the work offered to them. Putting the words“ self-employed subcontractor” at the top of an agreement does not necessarily make that person self-employed.
If the reality looks like employment, there is a legitimate question as to whether that individual should actually be“ books in”. That is a conversation the industry needs to have.
Why have we reached this position? There are advantages to the existing model for both parties. Individuals working through CIS often command a higher hourly or daily rate and may value the perceived independence that comes with self-employment. For contractors, the attraction is equally obvious. A genuinely self-employed subcontractor does not bring the same employment costs, obligations or potential employment-law liabilities as an employee.
The difficulty arises where businesses attempt to obtain the commercial advantages of self-employment while retaining the level of control normally associated with employment. However, you cannot easily have both.
A genuinely independent subcontractor should be operating a bonafide business of their own. There should normally be some degree of commercial independence and financial risk. Factors such as control over how work is undertaken, the ability to provide a substitute, responsibility for defective work, provision of equipment, the method of payment and whether there is any continuing obligation to offer or accept work can all become relevant.
No single factor will necessarily determine the answer, as the overall relationship matters.
The contract is important – but reality is more important
After regularly reviewing subcontractor agreements, having a properly drafted contract is essential.
The agreement should clearly describe the commercial relationship the parties genuinely intend to create. Where appropriate it should deal with matters such as substitution, control, financial risk, insurance, responsibility for rectifying defective work, equipment and the absence of any obligation to provide continuing work.
But there is little value in drafting an impressive subcontractor agreement if everybody ignores it from day one. A substitution clause, for example, will provide limited comfort if the contractor would never realistically allow anybody other than the named individual onto site. Similarly, describing somebody as being free to determine how and when work is undertaken sits uneasily with a working arrangement where they are managed in exactly the same way as employees. The written contract and the operational reality therefore need to align.
Labour supply chains are becoming harder to ignore
This debate is also taking place against a changing regulatory background, with the Government placing considerably greater emphasis on employment rights, enforcement and transparency within labour supply chains. Umbrella companies
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