Legal advice for self-employed hairdressers

Often salons see self-employment as a potential way of reducing costs. For stylists, self-employment can often be a first step towards starting their own business. But what is self-employment and what are the pitfalls?

For salon owners, there are financial attractions as they reduce their tax and national insurance bills. Similarly, they don't have to pay self-employed people holiday, sick or maternity pay. For some, avoiding the headache of managing staff is sufficient motivation.

However, it isn't enough to call someone self-employed and then treat them as an employee - this could have major, and costly legal ramifications.

• There may be a simple weekly rent for a chair or space in the salon. This is straightforward; the salon owner gets a weekly guaranteed income and the stylist should be relatively free to work when and if they wish and, in theory, sell their services elsewhere.

• A variation on this model is where the rent is a percentage of the column income. However, clearly when the stylist isn't there the income is zero. But avoiding this with requirements regarding working hours and holidays can raise questions against the self-employed status.

• Another model is where the salon owner effectively agrees to buy the services of the self-employed person for a set number of days or hours per week. This is normally for a fixed rate, but can also be for a percentage of the column income. I wouldn't normally recommend this option.

• Whatever model is used, there should be a written agreement either for the room rental or a contract for their services. There is also the issue that the renter's clients are probably their clients so if they leave, you are limited in the methods you can use to stop them taking the clients with them or restricting where they decide to work.

The benefits of self employment

There are the obvious attractions in being your own boss - the idea of being rewarded for your own good work is attractive. In theory, you select when you want to work although the evidence is that self-employed people work longer rather than shorter hours. Having met your outgoings, there is an attraction that the rest of the week's income is profit. Clients report that turnover increases about 20% when stylists suddenly become their own boss.

Similarly, there are tax and national insurance benefits.However, there is no holiday pay, no guaranteed weekly income, no sick pay and you have to manage your accounts and remember to save money to pay your tax bill.

Where can it go wrong?

For salon owners, using self-employed stylists restricts the tax and national insurance that can be collected by HMRC, which regularly inspects salons to determine if the self-employment is genuine.

It has issued the following helpful guidelines:

• Can they hire someone to do the work or engage helpers at their own expense? In other words, can the self-employed worker send someone else to substitute for them, subject to them having the appropriate skill or qualification?

• Do they risk their own money?

• Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?

• Do they agree to do a job for a fixed price regardless of how long the job may take?

• Can they decide what work to do, how and when to do the work and where to provide the services?

• Do they regularly work for a number of different people?

• Do they have to correct unsatisfactory work in their own time and at their own expense?

• Do they have to do the work themselves?

• Can someone tell them at any time what to do, where to carry out the work or when and how to do it?

• Can they work a set amount of hours?

• Can someone move them from task to task?

• Are they paid by the hour, the week, or the month?

• Can they receive overtime pay or bonus payments?

The other issue is that if the relationship breaks down the self-employed person is able to access an Employment Tribunal. If they persuade the Tribunal that the self-employment agreement was a sham, then they can claim unfair dismissal, the national minimum wage and holiday pay retrospectively.

David Wright advises Habia and UK salons. For £200 he will write your contracts, policies and salon handbook. You can contact him with your employment queries and he will send you a monthly newsletter filled with practical advice.