Employment Relationship and Contract

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Topic: The Employment Relationship and Contract

question

Dan operated a business providing statistical analysis in the financial services sector. Eve and Fred have both worked for Dan for three years. They were both described as self employed and both paid tax as self employed persons. Dan provided their entire specialist computer equipment and software. Eve was required to work solely on the projects Dan provided and she had to attend Dan’s premises everyday 9am until 5pm.

Fred on the other hand usually worked at home and was allowed to work on other projects. Fred could even arrange for his work for Dan to be done by someone else if he was too busy to do it personally.

As a result of the downturn in the financial services sector Dan has told Eve and Fred that there will be no more work for them and that they will not receive any further payment or compensation from him for their loss of work.

Required
1. Advise Eve and Fred as to whether they are employees or self employed.

2. Explain how the courts decide whether someone is an employee or is self employed.

3. Advise Eve and Fred what rights they have on their dismissal by Dan.

answer

(1) An employee is seen as someone who is employed under legal obligation of service. Such persons often have to do work that is assigned and does not have the choice to refuse work or assign their work to someone else. The employer is obligated to provide for an employee who does work in exchange for that obligation. A self employed person however is often free to choose his own work and can delegate the responsibility to perform such work to other persons. A self employed person has a legal obligation for services that are provided. The employer of a self employed person has limited obligation to provide for that person. A key distinction between a self employed person and an employee is that the employer has limited control over a self employed person as work and demand for services can be made but the degree of control as to how the work or service is provided is left up to the self employed contractor. An employee does not have this degree of control over work or services being provided as the employer dictates’ the terms by which the work or service has to be provided.

Table 1: Defining characteristics of employees and self employed persons| Characteristics| Employees| Self employed person|
Social Security Benefits.| * National Insurance Secondary Class 1 payments are made by the employer on behalf of the employee. * Primary Class 1 payments are made by the employee.| * The employer has no obligation to make any payments on behalf of self employed persons. * National Insurance Class 2 and Class 4 payments are made directly by independent contractors.| Taxation| * PAYE Schedule E payment are made via mandatory deduction by the employer and paid to the Inland Revenue.| * PAYE Schedule D payments are made directly by the independent contractor to the Inland Revenue.| Employment Protection| * Protected under the Employment Rights Act 1996.| * No protection under the Employment Rights Act 1996.| Tortious Acts| * Employers are vicariously liable for the tortuous acts committed by an employee during the course of employment| * Independent contractor I directly responsible for tortuous acts committed.| Characteristics| Employees| Self employed person|

Implied terms of employment| * Certain Rights and duties are implied by statute for employers and employees mainly in areas such as patents and copyrights.| * No implied terms of employment. Terms must be included in the contract.| VAT| * Not responsible to pay however the company he works for may be required to register and pay.| * Directly responsible to register and pay if required.| Bankruptcy| * Preferential creditors.-has to be paid outstanding salaries and redundancy payments up to certain set limits. | * Non...
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