It’s long been the case that self employed contractors could be deemed workers under employment law. You will have heard of many a ‘horror story’ where the self employed contractors were happy until the day came when they weren’t. What followed was an employment tribunal application that lead to a finding that they were workers. The issue then is that workers are entitled to sick pay, holiday pay etc including the right not to be discriminated against.
In the recent Court of Appeal decision of Smith v Pimlico Plumbers Ltd, the Judge has deemed that holiday pay not given in previous years of ’employment’ when the worker was told they were self employed and not entitled to paid leave will be still eligible to be paid when the relationship comes to an end.
What often happens is that employers trust that they will not need to worry about their self employed contractors.
“They get it” is often quoted to me by business owners when I ask about the fragility of these relationships. “It works for them, they are happy with the arrangement.”
It is certainly true, they are happy until the day they aren’t. In the case of the firm that fitted my UPVC windows and doors in 2008, they were happy until the financial markets crashed and firms like theirs had to make redundancies, the self employed contractors found their contracts cancelled and successfully claimed in the courts that they were workers. The back pay in holiday closed the firm permanently and I had to go elsehwere for my FENSA guarantee.
These days there is a new worry. The HMRC can audit any employer at any time and ask how the employer has established that these contractors are in fact genuine self employed. They will ask that you show how the official test of self employment has been met using the online calculator. What will you say when the HMRC say that these are workers? Will you be able to pay the underpayment in any tax and national insurance? Will you be asked to pay just your share or theirs too?
It’s a scary business.
So am I saying don’t employ self employed contractors to work in your small business? No, I am not, but if they are not genuinely self employed, please make use of the other options available to you to engage that individuals’ services. Better that you acknowledge their correct status at the outset than find down the road that a judge or HMRC wants to tell you that you got it wrong. As once said in legal circles, you can call it a giraffe, but if it is in actual fact an elephant, it will always be an elephant despite you calling it a giraffe!
If you need any assistance understanding the difference between self employed status and employed status, please do not hesitate to give us a call on 01527 909436.