Balancing the scales – employee or self employed?

In a recent tax case it was decided that Weight Watchers (UK) Limited were liable to pay income tax and national insurance contributions in relation to their ‘Leaders’ who arranged and conducted meetings for members and had prior to this decision, been considered by Weight Watchers as independent contractors. 

The decision delves into the area of employment status (as covered in our previous article here). The principle established in case law concerns examination of certain factors that point towards an individual being an employee under a contract of service or an individual working under a contract for services (which is not an employer-employee arrangement).

Contracts for services are common to contractors or agency workers. The main factors that are considered include the degree of control exercised over the work, whether there are mutual obligations to provide and do work and whether there can be someone else substituted to do the work. The courts examine the specific facts in each individual case and quite often look beyond the documents in place to see whether they reflect the actual practices taking place. Genuine independent contractor status means individuals can be paid gross and will be responsible for accounting for income tax and NIC to HM Revenue & Customs themselves.

In this case, Weight Watchers argued that their Leaders were independent contractors because they were not obliged to do the meetings. They were encouraged to do at least two a week, they could arrange for a substitute should they not be able to take a meeting and the Leaders were free to direct conduct meetings as they wished (albeit with materials supplied by Weight Watchers). In addition, Leaders only made money if they had suitable attendance and received enough commission. However, Weight Watchers did pay any hire costs or expenses.

HM Revenue & Customs and the First Tier Tribunal disagreed and said the Leaders were employees under contracts of service and therefore the usual PAYE deductions were owed. The Upper Tribunal upheld this decision.

The Upper Tribunal highlighted that Weight Watchers assisted Leaders book meetings at venues in advance up to a year and it would be absurd to think that a Leader was then not obliged to turn up to any of the meetings without any concern or redress by Weight Watchers. Rather the arrangement was that where circumstances prevented a Leader from taking a meeting on a particular date, then they could arrange a substitute to do so on those occasions. Weight Watchers also exercised control over the Leaders by requiring them to deliver their programme with their materials and stipulating who may be a member at that meeting. It was also felt that a Leader must provide her/his personal service in running a meeting to gain any contractual advantage from Weight Watchers.

Most employer-employee relationships are clear and confirmed by contracts of employment, however, there are situations where the lines can become blurred. This can be a costly issue if HM Revenue & Customs seek to challenge assumptions made by organisations such as Weight Watchers, so it is an area where businesses need to take advice on the risk.

Do you use independent contractors? Are the relationships properly documented, and have you taken advice on how to minimise the risk? For advice on this or any other aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected])