Why classifying non employees correctly is so important
Every organization has people working within it who are not regular employees. They are normally classified as subcontractors. In employment terms but not necessarily HMRC terms they fall into 2 categories a worker or a genuine subcontractor, each have some employment rights a worker far more than a subcontractor.
It is vital to get them right as a recent case involving Pimlico Plumbers shows, this was last week’s case a follow up from the original case which decided Mr. Smith the claimant was a worker not a subcontractor.
There is no hard and fast rule to categorize whether such a person is a worker or subcontractor. There are some guidelines and you can use the CEST tool on the HMRC website to help but neither will be absolute.
The tribunals, when faced a by a claimant to determine their status will disregard complex contracts which attempt to pin the individual to a certain category, subcontractor or worker but will look at what is really going on the ground before reaching their decision.
If you get it wrong as the claimant is classed as a worker rather than subcontractor it will be costly. A worker enjoys many rights which a subcontractor does not, amongst others the right to receive national minimum wage and national living wage, right not suffer unauthorized deduction from wages, right to receive statutory holiday pay and the right to be auto enrolled in the company pension scheme. Staff categorized as workers do not have the right to claim unfair dismissal, to request flexible working, or to receive leave for various family situations e.g. maternity leave or the rights to redundancy pay or statutory notice.
To get back to Mr. Smith, on being found to be worker Mr. Smith claimed payment for the all the unpaid holiday he had taken during the 6 years while he was wrongly classified as a subcontractor. The tribunal and the court of appeal agreed with him and found that Mr. Smith was entitled to receive payment for the taken but unpaid holiday. The tribunal awarded him £74,000 in respect of unpaid holiday pay.
The payment would only applies to the 1st 20 days of holiday per year rather than the minmum statutory 28 i.e. excluding the bank holidays. For a wrongly classified subcontractor who has worked with you for several years this can amount to a substantial sum. As an example say you have 10 contractors who are really workers each of whom earn £100/day and they have been with you for 5 years that equates to 1000x5x20 £100,000.
To avoid getting it caught out when you use non employees be aware of the differences between workers and subcontractors. For help and advice in the complex and tricky area please contact me at https://www.
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