Employers must realise that their duties and obligations begin before they employ someone. This applies to advertising job opportunities, carrying out interviews and decision making. If you get it wrong, it could prove to be an expensive recruitment campaign! Once you have found the right person, then it is important to ensure that you make a formal offer which is accepted, and which sets out the terms and conditions relating to the job, such as salary, holiday, benefits, references, medicals and probationary periods.
All employees must be provided with a written statement of their particulars of employment within 2 months of the commencement of employment. Failure to do is unlawful. Sometimes this is enough, but much more common is to use properly drafted contracts. This ensures that the terms & conditions of employment are made clear from the outset and should mean there is less likelihood of a dispute arising. Remember that changes can be made to the contract, but only if both parties agree. Normally, you cannot unilaterally impose change.
It is a popular misconception that a non-executive director is not the same as a director or executive director. The fact is that the only difference between them is that an executive director is normally employed (and so is an employee as well as a director) whereas a non-executive director is not usually an employee, but appointed under a contract for services. In law, all directors, of whatever kind, have an equal standing in terms of rights, duties and obligations. A person may also be a de facto director or a shadow director, which means that even if they are not called directors, they share the same duties and obligations. Directors are the officers of a company, and together they comprise the board of directors of a company, often referred to as the board. We regularly prepare and review employment agreements for executive directors and letters of appointment for non-executives. We also provide advice to directors on their statutory and common law duties.
Consultants who are retained by a business are generally speaking not employees. They are known as independent contractors who provide their services to a business under the terms of a contract for services. This compares to an employee who works under a contract of service. Consultants may either be individuals, partnerships or companies, even though the services provided may be performed by an individual belonging to a partnership or a company. It is important to appreciate that as consultants are not employees. Therefore, consultancy contracts will need special consideration. Whilst they cover similar requirements, they are not exactly the same. One of the advantages for businesses is that they will not be responsible for collecting and paying income tax (PAYE) or National Insurance on the consultants’ fees. We regularly prepare and review consultancy agreements for both individuals and those who operate through service companies.
The key difference between an employee and a self-employed person primarily comes down to tax. All employers are liable to collect PAYE and National Insurance contributions on behalf of employees and to pay it to the Revenue. From an employer’s perspective, this is an attractive option as it reduces their administrative burden and minimises the amount of tax they have to pay (by virtue of the employer’s NIC).
For self-employed people, they gain the advantage of flexibility as they work for themselves. Against this, they do lose a number of legal rights afforded to employees, such as the right to claim unfair dismissal. Contrary to popular belief, the distinction between being employed and self-employed is not always clear cut. This is compounded by the different views taken by the Revenue and Employment Tribunals, which may result in the perverse situation that the Revenue claims you are an employee (so they can collect more tax) whereas the Employment Tribunal find that you are not an employee. We have experience in drafting contracts for the self-employed and reviewing them on behalf of businesses to ensure the legal distinction is maintained.
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