The employment status of individuals in the workplace can be a confusing world with important implications to consider. To go along with those who found jobs with businesses (employed) and those who started their own business (independent contractors), you can also work in a job role that is not quite one nor the other (workers) in the UK. High profile examples of these kinds of workers include Deliveroo and Uber drivers.
Understanding the nuances of the employment status of candidate is essential given the wide range of implications that different categorisations can have on both the employee and the company. For example, working for Uber as a worker **gives you various statutory benefits such as sick pay, minimum wage, and paid holiday. However, working as an **independent contractor does not give you access to these perks and also changes the way you are entitled to be paid. The difference between guaranteeing a wage for a company with a structure like Uber is part of why there is an ongoing legal challenge to a potentially highly disruptive ruling.
The also relates to a tutoring company, depending on whether or not your tutors are indeed being treated as **independent contractors **who work with your tutoring agency and whether your practices are compliant with statutory regulations. To better understand this, we will first look at the ‘Gig Economy’ and its significance to how working a job is classified as the workplace continues to evolve. Now that you’re hooked, get your thinking hat on…
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The ‘Gig Economy’ and ‘Good Work’
The idea of a ‘Gig Economy’ has come to characterise modern working practices for an increasing number of new, and old, jobs (often via digital platforms). The basic premise is that an agent is paid per service completed rather than a wage, meaning that often someone would work a series of short-term contracts. Such an approach has merits:
Flexibility for people and businesses: being able to work when you want how much you want. Students and those with family commitments are often touted to benefit enormously in this way
Cost-effective for businesses: paying people when the work is available and not having to maintain high staff costs through salaries and National Insurance contributions in order to meet client demands
When things are going according to plan then this set up serves both the business’ and the individuals’ interests. However, there are some serious contentions to this setup when it does not work for all:
Individuals have no protections against unfair dismissal or access to redundancy payments
Individuals do not qualify to receive the national minimum wage, paid holiday, or sick pay, and are not guaranteed work
Recently, the Taylor Review — titled ‘Good Work — was published in order to try and address these vulnerabilities and offer some security and clarity to those working in an expanding job market. One if its highlights was the reclassification of workers as dependent contractors. This is as much for ease of vocabulary as helping to draw clear lines between when someone has greater employment entitlements than an independent contractor.
All employees are also workers whilst not all workers are employees, hence the need for clarification! You are forgiven for being confused, hence the policy review.
These kinds of proposals will have a potentially massive impact on companies that may well have to restructure the way they handle and interact with their employees, either making accommodations to the status of a dependent contractor **or explicitly demonstrating that a worker is in fact an **independent contractor. Wage structures and tax payments will need to be analysed and implemented with great care in future depending on the policy reforms the UK government proposes. Such attention to detail is equally extremely important for tutoring companies.
Tutoring agencies and their tutors
The basic premise of a tutoring agency is that you can offer your clients a network of tutors fit for their needs and offer your tutors client connections to increase their earning potential. However, different tutoring agencies will have different employment statuses for their tutors. TutorCruncher can help you manage all of these, so we thought it useful to highlight a couple of ways that you can approach your company model differently and how this affects what your company charges, what your tutors earn, and how they earn it.
**Tutors as employees: **If you have some tutors who are salaried by your company, then you can have TutorCruncher automatically add VAT (if your company is registered) to any services with these tutors to charge your clients, as well as setting their default rate per appointment to zero as their employee payroll is best handled external to TutorCruncher.
**Tutors as independent contractors: **For tutors as independent contractors, TutorCruncher can calculate VAT just on your company’s commission as the client is not charged VAT. As an agency operating as a middleman for tutors and clients, your invoices are configured in TutorCruncher to appear on behalf of the tutor and so do not include VAT as the self-employed tutor is not a VAT registered company. When issuing payment orders to detail what your tutors are owed, TutorCruncher will indicate what they are owed minus your agency’s commission and tax on that commission, as you are in effect charging the tutor VAT for your company’s services.
**Tutors as workers/dependent contractors: **If your tutors are appropriately categorised as dependent contractors, then you use a blend of both automated calculations highlighted above. VAT will be added to your client’s invoices and not be calculated just on your company commission and you are also able to issue payment orders to your tutors based on their rates for the services they have provided.
So when is a contractor dependent/independent?
Generally speaking, a tutoring agency will be seeking to operate with tutors as independent contractors, given the way it distributes out the work with clients and only pays VAT on its commission. As the paying of minimum wage is unlikely to be an issue, there are a couple of important processes to bear in mind to make sure, as an agency, you are compliant with the relevant employment status. If not, you might be liable to have VAT calculated on the client fee, rather than the commission, as well as having to pay National Insurance contributions to your tutors.
A couple of areas of attention involve paying tutors upon receipt of payment from clients. TutorCruncher is designed to make this easy for you, as Payment Orders will not be drafted unless the lessons on there appear on a paid invoice from a client (though you can override this if applicable to your company). That way, you are only paying tutors when you have received client payment and are operating consistently with the agency principle. However, if tutors are paid ahead of payment received from a client then, as your agency is effectively guaranteeing their wages, they are no longer treated as independent contractors and so the lessons should be VATable and National Insurance contributions come into play. There are other interesting areas such as giving your tutors a uniform, which blur the lines again between a dependent/independent contractor, which are worth exploring with your accountant to ensure your company is fully compliant with HMRC.
Ultimately, we at TutorCruncher would always recommend speaking to your accountant to ensure you have an effective understanding of the regulations and how your company’s structures fit in with this. We are always happy to offer advice ourselves, as well as give you the tools to take the hassle out of your compliance and focus on growing your company.