Self Employed Staff and Holidays

Self Employed Staff and Holidays

The Return of a Significant Risk to Employers

The use of self employed workers has once again become a significant risk to employers following a Court of Appeal ruling.

It has long been a feature of the legal landscape that those we believe are self employed, may in fact be Workers for legal purposes, and self employed for tax purposes. This means that a business could have staff who are genuinely self employed under the income tax and NI regime, but under employment law they are entitled as workers to have 4 weeks paid holiday per year (among other things).

The reason this rule catches businesses out is that the business believes that the men and women doing the work are self employed.  The fact is that it doesn’t matter if both parties agree that it’s a self employed relationship, unless the individual is properly in business on his or her own account, they are likely to be “Workers” entitled to holiday pay.

How do I know if the self employed are in fact “Workers”?

To be self employed, they must be in business on their own account. So, they probably have a web site, and sell their services to many customers, and not just to your business.

Another indicator is whether they can send someone else to do the work. If they cannot, or even if they can, but they don’t, then they are not self employed, and are a Worker.

It’s just a week’s holiday, right?

Wrong. There has been some debate about how much holiday that has not been paid will mount up. There has even been a period where us lawyers have said that it is capped at two years entitlement. That is to say, an employee cannot accumulate and then claim for more than two years holiday entitlement from the business that has engaged them.

This theory has now been dismissed by the Court of Appeal. The new normal is that an employee can, when they leave an employer, claim back all the holiday they accrued over the years provided the employer did not give them the opportunity to take it as paid leave while engaged.

In the case before the Court of Appeal, the self employed person claimed back 4 weeks for every year in the previous 6 years. That is 24 weeks pay, to include normal overtime.  The Court of Appeal have agreed that any claim made while still engaged is limited to two years maximum. However, any claim brought on departure, where the right to take leave is disputed and the employer has refused to pay it, is unlimited in terms of how many past years can be claimed for.

For an employer with 10 self employed sub-contractors who don’t work elsewhere, in similar circumstances, assuming a claim would only be brought when the self employed persons leave, would be on the hook for 240 weeks (assuming an average of 6 years’ service) or 3 years full pay for one contractor.

If we look at a brick layer, averaging £50,000 per year, that’s a bill of £150,000 for a small business.

The best advice is to review any arrangements now around self employed staff, before they become a problem.  Call Darren (darren@sherborneslaw.co.uk) or Trula (trula@sherborneslaw.co.uk) on 01242 250039 if you need to chat it through.

The case can be read HERE. Smith v Pimlico Ltd judgment (judiciary.uk)