'Worker' Status for the self-employed re holiday pay.

A client contractor company recently received a request for unpaid holiday pay from a legal firm representing an ex labour only subcontractor. When engaged the subcontractor provided his UTR etc and this was verified with the CIS helpline and 20% deduction was confirmed.
Obvioulsy having regarded the subcontractor as self-employed the client company was surprised to receive a holiday pay demand - a benefit associated with employee status.
Further enquiries now suggest that if this matter is pursued at an employment tribunal our client is liable to lose, apparently one can be regarded as a 'worker' which will enable this holiday pay to be claimed - even though our understanding is that one needs to be an 'employee' to enjoy worker status.
Ongoing from this it is difficult to see how our client can protect himself for further claims to holiday pay or if alternatively he makes provision for holiday pay will this may be seen by HMRC as a clear indication of employee rather than self-employed status.
Have any other members of the forum encountered this and how should this best be dealt with.

Comments
Democratus's picture

Very worrying

Democratus | | Permalink

kmacs

This is, if confirmed to be the case a very worrying development. Without giving away any confidential information could you explain why you are led to believe that your client is "liable to lose"?

 

On top of the deemed employment view that HMRC are taking this could be another angle to attack the contractor/contractee relationship.

I hope it's just a misrepresentation and that your client's view is reversed.

We await your further correspondence on this with interest.

D

 

jimeth's picture

Worker wants to have the best of both worlds

jimeth | | Permalink

It sounds as though this worker is seeking the best of both worlds!  Having the lower Tax and NI of self-employed status while seeking holiday pay too - if that is allowed then everyone will want it.  I don't know the legalities of this - hopefully others can comment.  However, I would have thought that the contract under which the self-employed worker is working should help - unless it is a case of false self-employment and the worker is de-facto an employee even though he has been treated as self-employed.

Worker Status

KMACS | | Permalink

Thank you for comments D.

ACAS have now become involved as part of the tribunal proceedings, and it is they that have taken the view that our client will be found to be at fault.

Admittedly our client has been reluctant to incur further costs in establishing a legal view point from his own solicitor, he is already incensed that he can find himself in such a ludicuous position, and added to which the other party's representative (be it as a act of bravado or not) have even suggested that should he seek this alternative advice so as to avoid unnecessary time wasting.

jonsa's picture

Worker status

jonsa | | Permalink

An employee or a worker is entitled to holiday pay. My understanding for a worker is that personal service is required - i.e. no substitution, so it depends what the contractor agreed with the sub-contractor and hopefully there was a written contract. There are other rules but I believe that is the major one. You need to look at the worker definition. If the contract confirms substitution, then the individual is not a worker/employee and therefore has no holiday entitlement.

Accountax Ltd

Anonymous | | Permalink

I recently attended a course given by Accountax (now part of the Abbey Tax Group) and they pointed out his very fact to the delegates.

They have successfully defended some of their own client's on this point and it would appear that union members are canvasing current and ex-site workers who were self employed. The worker joins the union (thereby paying union subs) and the company being pursued can end up paying all tribunal costs.

A very worrying state of affairs. Even more so that HMRC are bullying the construction industry with possible "False Self-Emplyment in the Construction Industry" proposals.

Worker/Holiday Pay

KMACS | | Permalink

That is an interesting contribution, thank you.

This would seem to suggest that a 'worker' can be self-employed and accrue holiday pay but how would you consider how that sits with HMRC. Substitution is considered to be one of the very important 'badges' of trade, but not exclusively so, however I would suspect that , no substitution (and thus no holiday pay) would be difficult to defend, added to which we are most probably referring to labour only subcontractors - and consequently the badges of trade are beginning to fall off quite rapidly.

Democratus's picture

More

Democratus | | Permalink

This looks like the engager may have incorrectly classified the claimant as self employed. Did your client use the HMRC Employment Indictor Tool? (i know before i get a flood of replies that it's a bit biased towards confirming employment, but it does give one an idea).

Looks like badges of trade, proper contract preparation and being damned sure that you are correct in how you engage a Labour only subbie is going to be much more important than some companies have traditionally treated these things in the past.

I wonder if HMRC could use this case or similar to also bind the engager into PAYE / NIC also? 

Forward Thinking

KMACS | | Permalink

Do any contributors believe that a contractor could in anyway comply with this requirement to pay holiday pay and successfully defend the status of the 'self-employed' subbie if challenged by HMRC.

Employment status, holiday pay et al

ameli1 | | Permalink

It is common for subcontractors to take the best possible rate and, after the work has been completed, claim that they were employees all along. The “Status” case will turn on the facts and advocacy of the defence. Crack the tax angle and your client will be well home. The facts with evidence will provide the bundle for the Tribunal. 

I am affraid the ESI is not the answer, as this should be left for only the most simplistic of status cases.

Employment status exists whereby there is an irreducible minimum of mutuality of obligations, personal service and control. The other factors (financial risk linked with basis of payment, business on own account/part and parcel, substantial and necessary equipment, etc, etc) come into play when the flexibility of the arrangements are not crystal clear.

My advice is for your client to bite the bullet and get specialist status advice from an expert, which does not have to be at Big4 rates!

Its a quid pro quo, and I suppose its depends on your client's assessment of the cost beneft.

NB. I would be happy to supply my email address to the Group, but do not want to be seen as too "salesy".

 

RebeccaBenneyworth's picture

Serious potential problems

RebeccaBenneyworth | | Permalink

Given the problem with status (as far as HMRC is concerned) I suspect that this would be a very tricky position for the engager to extract himself from. I have no doubt that there is an element of "ambulance chasing" in this and have even heard recently of lawyers highlighting cover within household contents insurance for things like Employment Tribunal action. Although there would still need to be a basis of claim this takes away the financial risk to the appellant.

HMRC's guidance insists that the employment status for tax purposes is not the same as for employment law purposes, but in reality the ET cases form the body of case law upon which an appeal about status is determined. I suspect the desire to separate the two may be more about HMRC arguing a set of circumstances where an ET appeal is not clear cut and they want to argue differently. However, as a broad approach to advising clients then I would normally take the view that if holiday pay is due then the case will be irresistable to HMRC status officers. One might go further and question whether under the current terms of the penalty legislation then any failure to come forward to resolve the position could amount to deliberate undertstatement on the next P35. (I am slightly playing devil's advocate here but I really think that is worth throwing into the discussion). Of course your rebuttal of such a claim would be that you still genuninely believed that the worker was not an employee, but it begs the question "On what evidence or grounds?"

Just what the Treasury needed to back up their case.......

 

RebeccaBenneyworth's picture

Ed's note

RebeccaBenneyworth | | Permalink

It is easy under the new system - you can just "private message" a member (provided they are not posting as Anon) and they will get an email which they can respond to on the site (by private message) but you can then exchange email addresses to contact by conventional methods.

Confidential email

ameli1 | | Permalink

Thanks Rebecca, this was already done by way of a side email as suggested.

Accountax

Siân Woods | | Permalink

Thanks for the comment about our seminar, glad you enjoyed it.

If someone is found to be a "worker" they are entitled to holiday pay.  This does not, however, mean that they are an employee and it is perfectly possible to be self employed for tax purposes but be a worker under employment law

As someone posted earlier it is not unusual for a subbie to want to be self employed while working but then claim they were an employee all along when the relationship ends.  A claim for holiday pay might be seen by some as an easier option.  It maybe they see this as "testing the water".  If the courts agree they are workers it might be worth pursuing full employee status. 

The courts have recently ruled that holiday pay claims are not restricted to the current holiday year but the claim can extend back to cover the whole period of engagement

In respect of status challenges we have not seen HMRC targeting companies that have lost holiday pay claims but obviously they could, which is even more reason to ensure client's affairs are in order.

Accountax

The Subbie is likely to win

bobhurn | | Permalink

I am aware of at least one case where the Employment Tribunal have deemed that a subby was entitled to redundancy pay and suspect that they will take a similar line with holiday pay.  The Tribunal's appear to have no interest in the tax status of the worker.

 

 

Sub-Contractor Holiday Pay

jake1509 | | Permalink

I have just come off the phone from a client sub-contractor who has in the last week won his claim for holiday pay, along with several other 'sub-contract' workers for the same contractor. My client was a reluctant sub-contractor and would much rather have been employed, but the work was offered as self employed or nothing. I had previously discussed this arrangement with my client and expressed my concerns at HMRC's view of it, but my client was not in a position to change his status. Perhaps his contractor should have given it more thought!

Holiday Pay    1 thanks

rfg.sandwood | | Permalink

As a main contractor who employs directly many trades and has no labour only "subcontractors" my sympathies are entirely with your subcontractor. We have to compete against the firms that bend the rules to cut costs and anything that levels the playing field gets my support..

CWalsh22's picture

Subcontractors and holiday Pay

CWalsh22 | | Permalink

Many subcontractors fall into the category of 'worker' and a worker can be employed or self-employed but he/she has always been entitled to a safe working environment and holiday pay.

Holiday pay is not a financial benefit as such, it simply allows any worker to take time off with pay. To not pay holiday pay may discourage a worker from doing so. (Tired workers - unsafe working environment, it makes sense)

All contractors should pay workers who are employees under PAYE, but should also retain a portion of the pay rate of labour only subcontractors (unless they can prove they have a business set up) to be repaid as holiday pay as and when required. This means a reduction in rates on a weekly basis, but the amount received by each subcontractor over the year remains the same.

Alternatively, if subbies kick up a fuss about waiting for holiday pay to be paid, the worker can be paid through an intermediary company that will pay the holiday pay on a weekly basis in a 'clear and transparent' manner, and whereas the subcontractor will normally win against a contractor in an employment tribunal case, the worker has less grounds for complaint if he has elected to be paid through an intermediary company that clearly states these methods are used. When these methods are accepted by the worker, who pays for the intermediary's service, he enters into a contract with the intermediary, and any clear contract can be relied upon in court.

I can supply details of intermediary companies operating in the construction industry.

Better to try the first route first though, and I have a standard letter to send to labour only subcontractors explaining why rates have to be split and paid separately as provision of service and holiday pay, with an illustration proving that they will be no worse off.

Contact me, and I'll supply these free of charge.

Workers Holiday Pay

StewartP | | Permalink

I am (sadly) fascinated by this ridiculously arcane and 'misty' topic (though not an area to be entered 'blind' IMHO!)

I am also keen to identify software that will enable accrual of holiday pay (don't ask!) so I can avoid 're-inventing the wheel' with Access / Excel et al. (Any add-ons that integrate with Sage / Sage Construct especially!)

Any & all ideas gratefully received

Thanks in advance

Stewart

P.S I'm based in W London and 'happy' to meet up with fellow sufferers to discuss practicable solutions to this etc......

Holiday Pay

Anonymous | | Permalink

12 Pay does this.

johnjenkins's picture

Euroland

johnjenkins | | Permalink

You have Euroland to thank for this one. It is they who have come up with this "worker" nonsense.

However to avoid any confusion this is what has to be done.

All Subbies should be issued with a "contract for service" within that contract you should show that the payment either includes holiday pay at the rate of £?? or is paid separately at the rate of £??.

The important thing is the "contract for service". You know where you are and the subbies know where they are and drawn up properly will withstand any challenge from HMRC or Employment Tribunals.

CWalsh22's picture

Accrueing holiday pay

CWalsh22 | | Permalink

Hi Stewart

How are you with Excel? I use a pivot table to work out accrued holiday based on previous 12 week data, otherwise the percentage 12.07% represents the holiday pay inc bank holiday pay entitlement on a day or hourly rate basis. This can be added to an extra column of a timesheet then pulled through to a summary sheet.

I'm in Essex but happy to meet up in London if people were getting together to sort this and other things out.

Holiday pay

cooperaccounts | | Permalink

 The company that I look after uses sub contract labour- labour only- as materials are direct from manufacturer to site, as specified by the client- all commercial works.  We issue Contracts for service open ended as we may only use a contractor dependent on his particular skill, for one or two days and then maybe not again for several months.  We have a list of around 100.  They are all aware that if they cannot do the job, they must send someone else, though in reality this has never happened.  So under the rules would they be considered workers?  As a company we have never been requested to provide holiday pay due to the very short periods sub contractors are individually engaged.

Substitution or in business

Siân Woods | | Permalink

The key to avoid the subcontractor being classed as a worker is to ensure there is no requirement for personal service or that the subcontractor is in business on his own account.

Your client uses a written contract so presumably it has a substitution clause in it?  So long as this is a genuine clause it does not matter whether it has been exercised in practice.  Although it may be difficult to demonstrate that it is a genuine right if it has not been utilised, there are things that can be done to help, such as, re-issuing the contract regularly and drawing the subbie's attention to the clause.

You said they know they must send a substitute.  Obliging the subbie to send a substitute, which can be helpful in avoiding tax status, may be detrimental in a worker argument.

In addition proving the subbie is in business is not as hard as it seems.  The test is not the same as for status.  Subbie's accounts often show they have claimed substantial business expenses and this goes a long way to persuading the tribunal that the subbie is not just a man turning up for a wage.

As mentioned in previous posts - get specialist advice.

 

 

 

holiday pay and subcontractors    1 thanks

tom batham | | Permalink

 At last a common sense response, a company should not assume that all sub-contractors choose to be so, i worked as a subbie for 26years, and i was never offered work any other way than as self employed, surely the essence of being self employed is that an individual chooses to become self employed, and does not have the status forced upon them. I think that its also a myth that a worker is better off as self employed, maybe in some cases they are, but i have seen self employed jobs advertised at the minimum wage, 

The company engaging the worker is certainly better off, there is far too much legal precedent now surrounding this subject, most companies in construction don't waste money fighting these claims.

holiday pay    1 thanks

chipsmonkey | | Permalink

Im a sub contractor , not by choice as i work for a company every day. They treat you as a employee but you have no choice on what you get paid. I work all over the country and have to pay all off my expenses then get taxed on them , e.g put in £100 in fuel get £80 back.If you don't work one day they get funny as they have to find someone else but when they don't need you they drop you like a lead baloon . I have asked if they will give me holiday pay and they don't even bother answering you and you get the impression you will be out of work if you ask again. I have worked for the same company for over a year and have to do 8 hours on site but don't get paid for the travel which is normally 2 hours each way . The only time i have had time off is when i broke my hand and I didn't get a penny over that time . Whoever thinks its better to be self employed is a mug as i get £95 a day loose about £8 a day in fuel and do minimum 12 hour days with travel . Would much rather be employed but no one in construction are these days

holiday pay

Deb146 | | Permalink

Sounds so much like my husband!  He would much rather be employed by the company he works for.  Did you ever get anywhere re the holiday pay.  Hubby is looking for other work but as you know its not good at the moment!

Misunderstood

Johnsulliv | | Permalink

As a emerging sole-trader, not having any specified education in either accounting, law or tax law etc. it seems the correct procedure for some persons of my similar status is misconstrued. Any work that is contracted (verbally mostly) will be recorded via time sheet, invoiced according to a pre-devised schedule of relevant fee's, with instructions for date of payment and warnings for charges and additional interests of late payment. If my client, shall we say. Is to remain the same for an extended period of time. Regardless to my personal status I am "working" for such and such, as a "worker". If payment is contested as I've had recently with agency's, court proceedings is undoubtably the unfortunate direction to retrieve "wages". This applies to my case as either gross payed or not, through the cis scheme. Am I wrong? For the existence of "payroll companies" reducing the "liability" for work agencies thus increasing margins for people's who, in my experience are usualy fairly unconnected and removed from the actual work taking place. Employment rights are the liabilitys of the contractors. Who said you can't put a value as to the cost of a mans life. Self employed are not businesses, it's still men and women. Statutory demands and services are the way forward in the current climate. I would much prefer to be employed for self explanatory reasons.

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