Employee or Self-employed? What’s best for your salon?

When it comes to running a salon, there is no ‘one size fits all’. Business models come in all shapes and sizes and the model you choose will involve deciding whether to employ people or not.

The choice is yours and there are many options, very few businesses will do everything in house but many will employ most people and outsource when they need to bring in particular expertise. Employing people gives you control over what they do and when they do it.

There are other options including independent contractors, freelancers, people running their own mini business within your brand/building (such as “rent a chair” models) - the examples are endless.

Whatever you choose, it’s important the model matches how you really intend to run your salon. Simply calling someone self-employed does not mean HMRC or an employment tribunal would agree with you, and if they don’t, there is a financial risk to your business.

What is a Worker?

Under s.230(3) of the Employment Rights Act 1996, a worker is an “individual who has entered into or works under … a contract of employment, or any other contract … whereby the individual undertakes to do or to perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaken or carried on by the individual”.

Worker status does not give full employment rights, it tends to be used when the agreement for work is casual or temporary as mutual obligation only exists during each assignment. Once an assignment (shift or other period of work) is completed there is no obligation for either party to commit to another.

What is an employee?

An employee is essentially an individual who has agreed to be at the service of an employer. They are personally doing the work and are controlled by the employer. An employee is working under a contract of employment, which may be verbal or in writing, although there is a requirement to issue a statement of particulars by the end of day 1.

An employee has extensive employment rights such as the right to claim unfair dismissal and statutory redundancy pay.

An individual’s status cannot be determined in the contract alone, there is a considerable body of case law and tribunals which give weight to how both parties have behaved. Issuing someone a self-employed agreement does not guarantee a tribunal will consider them self-employed, particularly if you have treated them as an employee.

Given the extensive rights employees have, where there is a dispute an individual is likely to argue that they have employment status. For an employment contract to exist there should be:

• A contract - which could be implied rather than in writing
• A requirement for the work to be done in person
• Mutual obligation to each other
• Control by the employer of the way and circumstances in which the work is done
• Other terms consistent with employment

As a side note, an apprentice is always an employee, they cannot be self-employed due to your obligations under the apprenticeship agreement.

The self-employed

A contract of self-employment is not an employment contract at all. The self-employed person is in fact an independent contractor. The key to self-employment is whether or not the individual is running their own business, in which case they are not entitled to any of the statutory employment rights.

The model for the contract should be a standard contract for the provision of services. Terms that indicate employment such as sickness, holiday, discipline and grievance should not be included.

Having said that, who issues the contract will vary depending on the relationship. Where a self-employed person is providing a service, it would be usual for them to issue the terms and conditions as you are the customer in that relationship. In a “rent a chair” set up, or renting a room, then it would be usual for the owner of the space to prepare an agreement setting out the terms of that rental, what will be charged and what that rent covers.

The self-employed person should not be referred to as an employee or worker, they should not be integrated within the business and should be liable for their own costs, such as equipment and products.

In a rent a chair model you may have a rental agreement that requires the individual to pay you a rate for that chair, in other models you may be paying them for completing a service.

What do you recommend?

We get asked this a lot. One model is not necessarily better than the other and the advantages of each will vary depending on the nature of the business.

If you do choose a business model of using self-employed people or contractors you must ensure the model is genuine. You will not be able to assert control over them and their attendance at work. Their agreement is to provide the service, it’s up to them how and even who provides that service. Be sure this is right for your business before starting this route.

If you have people you’re classing as self-employed but it really does look like they are employees, then you will need to consult with them. At this point the risks do exist both with them bringing an employment tribunal claim and HMRC investigating. We recommend in this case you do take advice on the specific nature of your case.

Article last updated: 28 April 2021