Considering a Contractor

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The distinction between a ‘contractor’ and ‘employee’ is not always clear-cut and has caused much case law over the years. A further complication is the additional category of ‘worker’. So, what is the difference between a contractor (or subcontractor) and a worker or employee? And why does it matter?

An employee is an individual who works under a contract of employment and is personally required to do the work. The employee will have additional legal protections relating to dismissal, holiday, sick pay, and health and safety. A worker is halfway between an employee and a contractor. They retain a similar level of dependence on the employer for work as an employee, which means they are not contractors.

The worker is entitled to National Minimum Wage and accrues holiday rights but does not have an employee’s additional legal protections. Employers retain much more control over the worker than over a contractor – such as how, when or where the work is performed. The employer provides any required equipment. For example, plumbers working for a company such as Pimlico Plumbers are workers.

A contractor is substantially independent. They do not need to perform the work or service personally (although they usually do) and the contractor works for a client or customer. Gardeners hired by a lay person (the client or customer) are usually contractors. There is sometimes no requirement to offer or accept work with contractors. Contractors will often determine their schedule. They are responsible for their own tax and insurance and most likely will be paid per job or for a fixed period of time, frequently by invoicing. This means less HR admin for the customer, with no concerns about PAYE or National Insurance contributions; or sick pay or annual leave.

The customer can contract out of paying the contractor to ‘make good’ any errors in their work. The contractor is usually hired for their specific skillset as and when required, or for a specific job. Normally, contractors use their own equipment, although sometimes they may ‘hire’ the customer’s equipment.

Liability

Usually, the employer is liable for the worker’s actions or inactions while they are working and will typically compensate for any resulting harm (financial or otherwise) to a third party. Similarly, if a worker is injured while on the job, the employer may be responsible for an unsafe workplace.

An individual may start out as a contractor working for a customer and become over time a worker or employee in the eyes of the law

While a contractor’s workplace still needs to be reasonably safe, they are usually required to have insurance for issues that arise as a result of their work. Indemnity clauses in the contract are highly recommended. Properly prepared, this means the contractor pays for any claims brought against the customer on the basis of negligence or financial issues they caused.

Similarly, if the contractor injures themselves while working, this may be considered more likely to be their responsibility rather than the customer’s – particularly if the injury relates to the contractor’s specific skillset.

Conclusion

Hiring a contractor has its attractions. Legally, the situation can seem simpler. The contractor will not accrue holiday, brings a lower liability risk, and the contract can be terminated on a purely contractual basis without the additional concerns of claims such as unfair dismissal that might be pursued by employees.

The contractual basis for termination can be as flexible as needed. However, an individual may start out as a contractor working for a customer and become, over time, a worker or employee in the eyes of the law, granting them additional employment rights such as holiday and sick pay. The ‘gig economy’ has made this an increased risk, particularly with ‘zero-hour’ contracts for workers.