ESM0542 | Guide to determining status: basis of payment

The way in which remuneration is calculated and how often it is paid can be important but by and large it is often inconclusive.

Typically, employees tend to be paid a fixed wage or salary by the week or month - and often qualify for additional payments such as overtime, long service bonus or profit share. Independent contractors, on the other hand, are often paid a fixed sum for a particular job.

Care must be taken with this aspect as it is often inconclusive. There are many examples of employees, who are paid by the piece or on the basis of commission, and, equally, there are many self-employed individuals, who charge by the hour or day. The hourly payment basis may, such as with many plumbers, accountants and lawyers, merely be a way of charging their time out and ascribing value to the work done.

It is sometimes more helpful to see what underlies the method of payment. For example, does the hourly payment method enable the engager to exercise control over the worker. If he can, this is a strong pointer towards employment.

Where an individual is paid entirely by commission but has to meet expenses to undertake the work this involves real financial risk which is a strong pointer to self- employment. Also, a car mechanic might be paid a retainer, not in return for services, but for ensuring that the payer will be given priority over other work. This is not indicative of employment.

Independent contractors tend to be paid a fixed sum for a particular job and, instead of receiving a payment on completion of a job; they may receive staged payments under the terms of the contract. For example, a person doing research work for a company may agree to complete the work within four months for a fee of £3,000, payable in monthly instalments of £750. Independent contractors are also likely to issue an invoice for the work carried out.

Payment ‘by the piece’ (where the worker is paid according to the amount of work actually done), or by commission, can be a feature of both employment and self- employment.

You may need to enquire further about the basis of payment – regular payments could be either wages or stage payments.

Fixed-price tendering is linked to financial risk. However, where it is claimed that payment is by way of an agreed price/pricework you need to establish that the basis of payment is a genuine fixed price agreement for the completion of the works and is not an agreed ‘price’ which has been set or imposed by the engager in relation to measured work or that the ‘price’ is no more than an agreed and set hourly rate.