HR advice from the Professionals

As part of the Human Resources Management Masters course at Napier University in Edinburgh, students have to go on a three week placement with a local business.  I was offered a place at Gravitate HR and the placement has recently finished.  I was lucky enough to be part of a very friendly team of six HR professionals.  All team members, with no exception, have been very approachable and helpful in assisting me with my learning experience.

Gravitate HR is a consultancy that provides HR services to different clients.  This set up has enabled me to see how a diverse range of problems can be tackled.  Team members take part in team brainstorming discussions in the office about the different problems clients put forward.  Gravitate HR adds value to their clients by offering them solutions that are crafted from the collective experience of the team.

These discussions made Gravitate HR an excellent place to improve my knowledge on how to design and implement best HR practices.  Therefore in the short three weeks of my placement I learnt a great deal and even contributed to some of the ongoing projects, such as: assisting with the preparation of 360 Degree Feedback questionnaires and researching the legal requirements and potential implications for anyone wishing to hire someone on a self-employed basis.  A blog contribution and publication on the consultancy website were a great highlight of the whole experience.

I am looking forward to return in June to complete my Masters Dissertation’s field research on how the 360 degree feedback tool can positively contribute in the creation of effective management development plans.

Ricardo Mateus

In the current economic climate some companies might be tempted to hire independent contractors on a self-employed basis rather than hiring staff as employees. The advantages and flexibility seem extremely attractive as this individual will not be entitled to any employment rights (apart from non-discriminatory rights), will only be paid when he or she produces satisfactory results, and the administration and managing costs will be overall much lower.

This looks too good to be true so why aren’t other companies doing just that? The simple answer to this question is that the employment status needs to be properly justified because at some point it can be challenged. At that stage, if the company fails to justify the legality of their self-employment arrangements they can face hefty financial penalties from HRMC.

The employment status could be challenged by the person who was hired on a self-employed basis, particularly if a dispute arises regarding pay or working conditions for example. It will be the employer who has to prove the validity of the self-employment status and not the individual. At this point, the onus is on the employer to prove that the individual is not an employee.

Another possible scenario is when an Inland Revenue “status inspector” performs an employment status audit on the company. The Inland Revenue loses a great deal of revenue with self-employment arrangements (e.g. lack of employer national insurance contributions, etc) so it is on their best interest to prove that there is an employment relationship where the relationship is blurry.

How can we decide?

The Inland Revenue status inspector and Tribunals apply various tests to check the validity of the self-employment arrangement.

The main four indicative tests are:

(1) the Degree of Control Test (e.g. the amount of supervision and how much does the company control the how, when and where the individual works);

(2) Mutuality of Obligation Test (e.g. can the individual reject work without any future detriment?);

(3) the Economic Reality Test (e.g. Is the person in business on their own account? Is there a degree of financial risk? Can the person make a profit or a loss?)

(4) the Integration Test (e.g. is the self-employed individual’s work integrated with the core business or is this work only an accessory to it?).

There are other aspects that might be looked at as well, such us: is the person working on an exclusivity basis for the company or does it have several clients? Is this a short term project or is the person hired to work indefinitely? Does the contractor have the right to appoint a helper or a substitute to do the job?

Often, taking someone on as an ‘employee’ is a safer option. Additionally, making the person feeling part of the company and having more control over what the employee is doing will also bring great benefits to each party in the employment relationship.

A more flexible approach could be using “casual workers” where the casual employment relationship can widen the gap, for example, by using temporary or zero hours staff. You may wish to use this where you require flexibility or markets are unclear. It is important to note that all workers are still entitled to be paid the national minimum wage for each hour they work and that the premium that you will pay per hour to an agency might not make this option cost effective.

Each year, the Employment Tribunal Services provide statistics summarising the number of claims that have been brought to tribunal (both successful and unsuccessful), what the jurisdiction of each claim is, representation at each claim, and the subsequent compensatory awards for successful claims.

From last year’s report, the following statistics have been provided –

Total number of claims introduced into a tribunal from April 2007 to March 2008 was 180,303.

Included in those claims that were successful were:

*Only a small number of cases were brought forward to tribunal but this was an increase of 300% compared to the year below when Age Discrimination legislation was implemented.

What does this mean?

The high number of successful unfair dismissal claims can act as a stark warning to employers to ensure that best practice is applied and procedures followed, particularly in today’s climate where an increasing number of organisations are restructuring and, as a result, face potential redundancies.

The number of successful discrimination cases may be lower in comparison, yet the size of the compensatory award demonstrates the EU and the Government’s campaign for equality in the workplace. As a result of the recent age discrimination law being implemented, we may well see a continuing increase in the number of cases if employers do not respond to such legal requirements.

We have also seen recent reports of equal pay claims going through the courts from many organisations, including public sector, and therefore, there may be a knock on effect on the number of sex discrimination and equal pay claims over the coming months. The aim of the forthcoming Equality Bill will be to consolidate and streamline existing law, and also contain new measures to produce greater transparency in pay.

Discipline & Grievance Procedures

Recent developments in legislation, including the repeal of the statutory disciplinary and grievance procedures replaced by the new ACAS Code of Practice on 6^th April 2009, are expected to have an impact on how many unfair dismissal claims make it to a tribunal and the resulting success of such. The Code is aimed at promoting the resolution of disciplinary and grievance issues in the workplace, and ensuring that issues are dealt with in accordance with the basic requirements of fairness. The fairness of any procedure will be heavily dependent on whether an employer has followed the principles enshrined by the Code when dismissing an employee. A failure to comply with the code does not in itself render an employer liable for claim but it will be taken into account by the tribunal when considering whether or not the employer acted fairly or not.

Looking ahead…..

With impending legislation, a lot of discussion on the Working Time Directive, significant impacts from case law following discrimination cases, and the result of the new ACAS Code of Practice, it will be interesting to foresee what the results of next year’s tribunal statistics will look like yet it is clear that these current statistics present a benchmark for the changes.

To be sure of compliance with best practice and up to date on best practice, please contact Gravitate HR. The contents are not intended to be legal advice.