Contractors to Employees: From Uber to your business

The case for Uber

Since Uber’s official app launch in 2011, the company has maintained that it is a booking platform that hires independent contractors to work as drivers. As a result, Uber has not been paying 20% VAT on fares; nor has it paid out any of the benefits – such as minimum wage, holiday pay, and sick leave – that its drivers would have been entitled to as employees. 

This is all about to change, with the UK Supreme Court ruling in favour of GMB, the union representing Uber drivers that originally presented the case. The landmark decision comes after prolonged (and very much needed) discussion around the rights of contractors/freelancers in comparison to employees. Among numerous reasons, the Court found that “drivers are in a position of subordination and dependency to Uber,” with working conditions “very tightly defined and controlled by Uber”.

What about Uber drivers in other countries?

Uber has fought hard to preserve its business model in similar cases brought against them in the United States, citing a piece of legislation called Proposition 22. In summary, Proposition 22 gives companies an exemption from classifying contractors as workers and thus paying them benefits and minimum wage. 

It is, however, a vastly different story elsewhere. The recent ruling in the UK is a timely one as, at the time of writing this blog article, new legislation proposals are being drafted in Europe. We understand The European Commission is close to releasing an update on a potential piece of legislation for the gig economy scrutinising the role and classification of gig workers. New proposals could be released within the year and if accepted new legislation would have a huge impact on companies across Europe whose modus operandi is like that of Uber. 

In the past countries have been left to their own devices on how to deal with the classification of people who work within the gig economy and their entitlements. Courts in Spain, Italy, the Netherlands, France and Belgium have so far ruled independently in favour of reclassifying gig workers and it seems a unified stance is just around the corner.

We have to agree with this concern regarding workers’ rights and freedoms. The distinction between ‘contractor’ and ‘employee’ remains a somewhat grey area surrounding the gig economy (i.e., the world of independent contractors, freelancers, on-call workers, and temporary workers). Let’s take a closer look at how they differ.


Employee or contractor?

Whether a worker is classified as a contractor or as an employee is far more than a formality. 

By definition, an independent contractor (AKA freelancer or consultant) performs work according to the terms of a contract they have negotiated with a client/employer. Typically, an independent contractor operates as an independent business. A contractor may work as a self-employed individual (sole trader) or be engaged via an agency. As a result, they do not hold standard employment law rights such as minimum wage, holiday pay, sick pay, parental leave, redundancy pay; or contesting unfair dismissal. 

An employee, on the other hand, is entitled to the employment rights listed above. They generally work exclusively for their employer, being paid a salary or hourly rate agreed at the start of their employment. Working conditions, such as hours and location, are also determined by the employer. An employee may work on a full-time, part-time, fixed-term or casual basis. 

Put simply, independent contractors and self-employed workers work mostly on their own terms, with the ability to accept or turn down work as they please. In most cases, they can also set their own working hours and rates. While they may enjoy this flexibility, they miss out on all employee benefits, prompting certain countries like Spain to set mandatory minimum wages for independent workers. 

Employee or Contractor: Crossing blurred lines 

In any case, both employment scenarios still share certain key aspects: a formal agreement (contract) between ‘worker’ and ‘employer’, potentially varied time commitments, and other variable working conditions which may be unique to the job and agreement between the two parties. A contractor can also become an employee if working arrangements change over time.

Confusion between the two is common – many workers are unaware of their rights, and many businesses struggle to navigate complex and ever-changing employment and tax laws. 

In the UK, the responsibility is on the employer to determine whether a worker is a contractor or an employee for legal and tax purposes. This is a trend we predict will continue in many other countries in Europe in the very near future.

Wrongly treating one of your employees as a contractor may have significant repercussions for you as a business. An employee could make a claim against you and demand backdated holiday pay, or other entitlements. Not to mention that your business is liable when it comes to tax and National Insurance payments, and suspected evasion of these responsibilities could lead to hefty Government fines or penalties.


Let’s talk next steps

As best practices in HR apply universally, all employers should be extra mindful when hiring contractors, checking against current legislation to ensure these contractors should not, in actual fact, be employees.

Ask yourself the following questions: 

1. Regardless of their location around the world, does my company use contractors, freelancers or gig-workers to help the organisation function on a day-to-day basis?

2. As a company are we 100% clear on the current in-county regulations of how contractors and freelancers should be classified?

3. If contractor and freelancer classification rules changed tomorrow, how would this impact your company and its ability to operate?

And finally.

4. What are your moral obligations to offer contractors, freelancers and gig-workers the security and peace of mind that comes with being an actual employee of your company?

At Teamed we strongly believe in giving people around the world an equal and fair chance to access and enjoy fulfilling and long-term employment opportunities, and the benefits protection that come along with them. For this reason, we support the recent ruling against Uber, and we hope this case acts as a catalyst for companies to offer more stable careers opportunities to freelancers, contractors and gig workers around the world

Regardless of the structure or size of your team, it’s important to get your head around employment policies and keep your finger on emerging trends in the business world at large, and Teamed are here to help every step of the way.

Curious about leading innovation within your company to ensure your business remains future-proof? Get in touch to find out how Teamed can get you there.