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When is a worker not a worker?

PUBLISHED: 12:44 03 January 2018 | UPDATED: 12:44 03 January 2018

Darren Sherborne, Sherbornes Solicitors Ltd.

Darren Sherborne, Sherbornes Solicitors Ltd.

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Welcome to the perfect storm for businesses which use self-employed staff, writes Darren Sherborne, of Sherbornes Solicitors Ltd

I was a little taken back in December by a European ruling that adds considerable force to the flood of decisions, making the use of self-employed workers ever more risky. This is not because the genuine self-employed worker is a risk, but because the question of who is genuinely self-employed has become less clear, and the financial consequences of getting it wrong are now capable of being business ending.

Perhaps if I set out the sort of risk I am talking about you can decide for yourself whether to read on or digest the nice pictures of expensive properties for sale elsewhere in this magazine’s sister title.

If I assume a person who has worked for five years at a rate of £150 per day, who is later found to be a “Worker” and not self-employed, poses a threat to a business to the tune of £15,000.

If you have 10 such workers that figure would be £150,000. That’s assuming £150 per day and only five years’ service.

The fact is, that many people we think are self-employed are in fact classed as “workers”. This is a sort of middle ground between employees on the one hand, and genuinely self-employed people on the other. That means, those people who really are in business on their own account.

This in itself is not news. We have been watching this law develop for the last two years. Employers who use self-employed contractors, but tell them what time to start, what to do and how to do it, probably supplying some tools, or a van, have actually got “Workers” and not self-employed people. We also already know that these workers are entitled to the minimum wage and accrue holidays which are paid.

As far as I can tell, this is a very common situation, but it hasn’t caused too many issues for business so far because of two rather stark restrictions. Firstly, workers had to pay tribunal fees if they wanted to sue for four weeks’ unpaid holiday per year. It cost hundreds of pounds to get before a tribunal judge, and when you add that to the wages lost by attending the hearing, it was not worth the trouble in most cases. However, late in 2017 the Supreme Court ruled that Tribunal fees were unconstitutional, and banned them.

The second thing stopping people claim was that claims for unpaid or untaken holidays by workers was limited to 2 years back entitlement. Doubt is now cast on the lawful nature of this and Europe has ruled that claims can go back over 20 years.

In short then, tribunal fees have been abolished and instead of two years’ worth of back holiday, workers can now claim 20 years’ worth of back holiday accrual at 4 weeks per year of service. That is now a substantial claim, and one that is very much worth pursuing.

How this risk manifests itself is that a business may have what it believes is a self-employed person, who is happy to take the advantages of being classed as self-employed, until there is a fall out or the person leaves. At that point, the worker can then sue the business for all of the paid holiday that has not been taken. Naturally, as soon as one sues, the business is under the spotlight from the rest of its labour force. The claim can now go back to when the person started work in the first place and, having left the business, the person has nothing to lose and everything to gain.

As a business that uses self-employed labour, the first thing for this new year should be to gain a proper understanding of whether or not your labour force is properly self-employed, or actually classed as workers. This is not a tax question, so don’t confuse IR35 or people working with CIS cards. It’s a legal test, and even if someone is self-employed for tax, they may be workers for the sake of holiday entitlement.

The test applied is mainly one of control. There are numerous questions a lawyer will ask to work out if there is a chance of saying the labour force is properly self-employed, but the place to start as a business owner is “is that labour really in business on their own account? Do they sell their service to other people, members of the public? Do they have a web site?” If the answer is no, the business may have a problem and it is good advice to suggest a closer look. If the answer is yes, while there is no guarantee, it is likely that the labour is really self-employed.

To assess the level of risk the business faces, it’s a fairly straightforward set of arithmetic. What is the day rate? Multiply that rate by days per week (5 or 6) and multiply the answer by 4 and you have the value of a year’s holiday. Now multiply that by the number of years’ service. That’s the liability for that person.

Of course, if the business has been granting paid holiday to self-employed contractors, then it has nothing to worry about.

Darren Sherborne is a Senior Employment Solicitor and part time Arbitrator based in Cheltenham. He specialises in Employment Law and practices in niche Business law firm Sherbornes Solicitors Ltd.

Visit the Sherbornes Solicitors website here.

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