06 February 2012 #Employment
Employment contracts often label the employment status of a worker as either “employee” or “independent contractor”. The main difference between the two being that employees have greater protection under employment laws and the employer is responsible for deducting PAYE and class 1 national insurance contributions. Independent contractors on the other hand have fewer employment rights and do not have PAYE or class 1 national insurance contributions deducted.
A recent judgment has highlighted how tribunals will look at the reality of the employment relationship rather than the label in the contract. In the case of Weight Watchers (UK) Ltd v HMRC, the Upper Tribunal (Tax and Chancery Chamber) held that Weight Watchers ‘Leaders’ (who conduct the Weight Watchers meetings) are employees even though their contract stated that they were independent contractors.
The tribunal concluded that the substitution clause in their contract was not detrimental to their finding of employee status as although the Leaders could provide a substitute to hold the Weight Watchers meetings, there were several limitations to this right.
This case is an important reminder for employers to check that the label in the contract of employment reflects the reality of the employment relationship. If a contract describes a worker as an independent contractor but in reality all factors point to an employee/employer relationship, the tribunal will look beyond the label.