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Ben Jones
Ben Jones, UK Lawyer
Category: Employment Law
Satisfied Customers: 70868
Experience:  Qualified Employment Solicitor
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Is there a type of employment contract which does not commit

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Hello, yes, is there a type of employment contract which does not commit the employer to pay severance when the business has to shrink and reduce salaries?
JA: Was the employment contract issue discussed with a manager or HR? Or with a lawyer?
Customer: I am the owner director and wish to employ a book keeper on terms which won't commit to severance payment in future if the role has to be changed to be less than substantially similar - does such an employment format exist?
JA: What is your employment status? Are you an employee, freelancer, consultant or contractor? Do you belong to a union?
Customer: I am the director owner of the company
JA: Anything else you want the Lawyer to know before I connect you?
Customer: the book keeper's current 3 month contract ends 31st Oct 2020

Hello, I’m Ben. It’s my pleasure to assist you today. I may also ask for some preliminary information to help me determine the legal position.

Hi there. Can I just check, how long do you intend to employ them for and will it be part or full time employment?

Customer: replied 10 days ago.
We would like to ideally to employ them long term but the scale of the business is now less predictable and we are worried that a standard full time permanebt contract will lock us into un manageable expense (severance payment) if the business has to reduce salaries because of a reduction in business revenue

OK I understand and thank you for providing this information. Please do not worry and leave it with me for now; I will get back to you with my answer as soon as I can, which will be at some point today. The system will notify you when this happens. Please do not reply in the meantime as this may unnecessarily delay my response. Many thanks.

Many thanks for your patience, I am pleased to be able to continue assisting with your query now. If the person is employed as an employee then once she has at least 2 years’ continuous service she will get certain rights on termination.

According to the Employment Rights Act 1996 there are five separate reasons that an employer could rely on to show that a dismissal was fair: conduct, capability, redundancy, illegality or some other substantial reason (SOSR).

If there is a reduction in workload and her job will either cease to exist in its current form or disappear altogether, you will most likely be looking at redundancy as the reason for termination.

In these circumstances she will be entitled to redundancy pay, no matter whether she is on a permanent contract, part-time contract, fixed-term contract, etc. Basically, any employee contract will trigger the need for redundancy pay in the circumstances.

You will have to employ her as a contractor to avoid having any redundancy obligations. However, establishing a person’s employment status is not always an easy task and can be a complex task.

It is usually irrelevant what a person is labelled as by their employer because their actual status would depend on the overall employment relationship and how they were treated, rather than how they were referred to.

The main problem is that there is no single official way to determine someone’s status and it is usually done by checking if certain factors are satisfied. These factors have been established through the courts over the years and will still vary on a case-by-case basis. Therefore, whilst they serve as a starting reference point, in reality only a court can provide a definitive answer on someone’s employment status.

Generally, there are three main types of employment status which are relevant in these circumstances: employee, worker and contractor (self-employed). As workers’ and employees’ rights largely overlap, the main issues are in distinguishing whether someone is self-employed or a worker/employee. The following factors are usually taken into account:

1. Personal service – contractors will provide their own services, but may also sub-contract work to others, or bring in outside assistance. Employees only provide their personal services.

2. Mutuality of obligation – contractors are free to accept or turn down work if they want to and the employer is under no obligation to offer them any work. Employees are obliged to accept work offered by their employer who also has a duty to offer work in the first place.

3. Right of control – contractors are likely to be in control of most aspects of the work done. Employees’ activities may be controlled by their employer, such as "what", "how", "where" and "when" work is done.

4. Right of substitution – contractors can sub-contract work, or bring in assistance. Employees, on the other hand, are unlikely to be able to offer a substitute for the work they do.

5. Provision of own equipment – contractors will normally supply all small tools and bring in or hire plant and machinery. Employees may sometimes supply own small tools or equipment but the employer will provide all plant and machinery.

6. Financial risk – contractors will quote on a job-by-job basis and can make more profit by more efficient working, or may incur loss if they overrun on time. Employees are paid whatever work is done, bear little risk and poor performance generally only affects appraisals or additional payments like bonus/commission.

7. Part and parcel of the organisation – contractors may become "a fixture" in that their work brings them to the company regularly, but acquire no additional responsibilities or privileges as a result. Employees are capable of being promoted or manage other staff. They also benefit from being in a pension scheme and get other benefits/perks usually given to employees.

HMRC also has an online tool which you can use to try and determine your status for tax purposes – this is still not a definitive answer but can be useful in giving you an idea of what the status will likely be:

Hopefully, I have answered your query in a way that is simple and easy to understand. If anything remains unclear, I will be more than happy to clarify it for you. In the meantime, thank you once again for using our services.

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