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Is this person an "Employed Earner"?

Determination "is he or isn't he"?

During the tax year 2016-17 this client worked as an agency photographer and had an income of 22K for the period, for which tax was paid on self-assessment basis. He is billed at around £40ph.

In 2017, as a pedestrian, he was hit by a car and left permanently disabled with a spinal defect and limited walking ability. As a result of this he was no longer able to work and is left in constant pain.

His mortgage provider had built-in insurance as part of his premium to cover for loss of work and so he invoked the policy making a claim from the insurer.

The insurer firstly wanted proof of illness/disability which was provided, then proof of business closure/non-trading status, which was also evidenced through bank accounts etc.

The insurer then asked about earnings in the current tax year (2017-18) vs previous tax year (2016/17) and suggested that they were "concerned" that the persons income had not actually dropped, as he did undertake the occasional portrait job from a seated position.  It was demonstrated that the income had fallen by around 6000%.

The insurer became increasingly aggressive in their pursuit of this disabled man and left him with the impression that he was being investigated for fraud. Though never expressly stated this.

After a battery of telephone interviews, forms and spreadsheets, the insurer declined to pay out on the policy.  They stipulated that during the period where he was undertaking work on an agency basis, he was not working an average of 16 hours per week and that is the legal definition of employment.

However, we have spoken to an AutoCAD consultant who works on commissions of £200 per hour and works to 5 hours a week with an income of around £52K pa. If the insurance criteria is correct, then this gentleman is not 'working' either.

We also spoke to a lawyer billing hours privately at £400 ph and working for 10 hrs per week (£208K pa). Also not 'working' under the definition used by the insurer.

Finally, an eminent plastic surgeon earning around £5000 per job, which affords him 12 hours work per week and an income of £780K pa. On the assumption that he was to lose the use of his hands, (privately insured) he would not be able to work. According to the insurer he would also be classed as not working either.

Surely, there is a legal definition of whether someone is an employed earner, that does not rely upon working 16+ hours per week? Does anyone know?

Many thanks in advance.

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By mrme89
16th Mar 2018 14:10

This is one for the lawyers. There's a lot at stake here not to be taking paid for advice.

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16th Mar 2018 14:26

I'm wondering about your 6000% fall in profit, though.

That seems a lot.

I agree that this seems to be a lawyer thing. Or, at least, an accountant who specialises in the insurance claim field.

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to lionofludesch
16th Mar 2018 20:11

I think the 6000% drop was income not profit, but this is as told by the client, not verified. Essentially it's a minor point though, but thanks for commenting.

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to dstanden
16th Mar 2018 22:30

A 6000% drop from income of say £1000, means a drop to -£59000. Minor point it might be, but it casts doubt on the entire anecdote.

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to lionofludesch
17th Mar 2018 01:13

You are absolutely right. My mistake. When I checked my notes, he has had a drop of some £16000 not 6000 percent, which equated to a 235% decrease in income. My apologies for the confusion.

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to dstanden
17th Mar 2018 09:41

Any decrease of more than 100% will mean a negative result.

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By jcace
16th Mar 2018 14:41

I would imagine that some of this will come down to the wording within the insurance policy.

Bear in mind also, that although the photographer charges £40 per hour, who is responsible for the photo processing - the photographer or the agency/client, as that could add a considerable amount of time that was worked?

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to jcace
16th Mar 2018 20:12

A good point and one that I cannot answer immediately but we will certainly suggest to the client. Thank you.

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to fawltybasil2575
16th Mar 2018 20:26

This is excellent Basil and thanks for taking the time to reply. I liked the inverted role consideration by which the insurer has to defend their policy terms and in particular what legislation they are using as a basis.

Since it is clear that there does not appear to be a legal 'definition' anywhere, this might be enough to provide a first rebuttal of their argument.

As there is an insurance ombudsman, we are also going to suggest that he considers options on two fronts:

Firstly, does the 16+ hours 'legal' definition stand up to scrutiny? Can his £22K earnings for the year, for which he paid tax not be taken as proof of working as an 'employed earner'?

Our second option relates to the insurance itself. As this is added on to his mortgage payment and taken by the bank automatically, he has never seen any policy documents. The client states that the insurance has been taken (and continues to be taken) even though, assuming their 16+ hours holds water, in fact he has not been covered since 2004.

Arguably, the client never needed to make a claim during this time and so was completely unaware that this insurance, he was paying for, was never going to pay out because of his circumstances.

We are wondering if there are grounds to pursue a refund of premiums taken.

I would be interested in any views on this option.

Thanks again

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19th Mar 2018 11:54

The terminology might be confusing the issue. 'Employed earner' is a term used in national insurance law to mean someone working under a contract of employment or in an office (eg, company director) with earnings. As an agency photographer filing SA returns, he was clearly not an 'employed earner' - self-employed people finding work through agencies might (in certain circumstances) find themselves subject to PAYE and Class 1 NIC, but that is because of specific tax and NIC rules: their status as self-employed traders is not changed.

Employment law defines employees, workers and self-employed persons.

But your query is about the interpretation of an insurance policy, and insurance against loss of earnings through disability. You need to take appropriate advice on the precise terms of the policy. There are lots of self-employed people who have found out that they have been paying premiums for useless insurance that only protected against losing an employment that they didn't have, not against losing their self-employed income.

It depends on the policy, not tax, NIC or employment law. If the policy required the policyholder to be working at least 16 hours per week on average, on whatever basis, it is easy to see why the insurer is refusing to pay out. Look at the policy in detail, and take professional advice.

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to David Heaton
19th Mar 2018 14:26

Quite. Look at the policy.

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to David Heaton
19th Mar 2018 16:35

Many thanks for the in-depth analysis and clarification. I have not seen the policy, but I have referred the client for legal advice as it appears to be the most appropriate consensus of opinion. Thank you to all who have contributed to the discussion. Your comments have been truly appreciated.

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