02 May Contractor Protections and Entitlements: Know Your Rights
Contract work is becoming increasingly popular because of its flexibility and autonomy. However, navigating the complexities of contractor rights and entitlements can be daunting. This blog aims to demystify these aspects and empower contractors with the knowledge they need to make informed career decisions.
Understanding contractor status
Firstly, it’s crucial to distinguish between being an employee and being self-employed. Contractors engaged via an umbrella company are typically employed but always check your contract. Whereas contractors engaged via other methods are typically classified as self-employed, which affects their rights and entitlements compared to those of employees. The key distinction lies in the lack of employment rights, which could protect you against unfair dismissal and redundancy payments. However, contractors enjoy greater flexibility and potentially, higher pay, which can compensate for these differences.
Sick pay
One of the most common concerns for contractors is the lack of statutory sick pay (SSP). As self-employed individuals, contractors do not qualify for SSP that employees receive. Instead, contractors are encouraged to set up their own financial safety net. This could involve setting aside savings or investing in private income protection insurance to cover periods of illness.
Holiday pay
Similarly, contractors do not receive holiday pay. When you’re self-employed, every day not worked is unpaid. This lack of holiday pay must be factored into your rates and financial planning. Many contractors adjust their rates to compensate for the equivalent of holiday pay, ensuring they can take time off without financial stress.
Statutory benefits
While many statutory benefits do not apply to contractors, understanding what you are entitled to is essential. For example, contractors have the right to work without discrimination and to a safe working environment. Furthermore, depending on your working arrangement, you might be eligible for maternity or paternity pay through the Maternity Allowance or similar schemes, even if traditional statutory maternity or paternity pay does not apply.
Pensions
As for pensions, contractors are responsible for their own retirement planning. Unlike employees, who might be enrolled automatically in a workplace pension scheme, contractors must set up and contribute to their pension plans. The state pension remains available, but personal or stakeholder pensions are popular for many self-employed professionals to enhance their retirement savings.
IR35 – are you inside or outside?
Understanding IR35, the anti-tax-avoidance legislation that aims to tax ‘disguised employment’ – people claiming to be self-employed when for all intents and purposes they’re an employee – at a rate similar to employment, is crucial. It affects contractors who don’t meet HMRC’s criteria for self-employment. Being inside IR35 can significantly affect your net income, as it entails paying income tax and National Insurance Contributions just like an employee, without the associated rights and benefits.
Knowledge is power
Contracting can be highly rewarding, offering flexibility and potential financial benefits. However, it requires careful planning and awareness of your rights and responsibilities. By understanding contractor entitlements, you can overcome challenges and maximise the opportunities of your chosen career path.
So, consider how any changes in legislation could impact your rights as a contractor, and consult with a legal or financial adviser to tailor your plans to your circumstances. Follow our latest blogs to stay informed.
For more information and advice, contact i4 Services.