UKC

Hi, excuse the anonymous post. It's to protect a friend's privacy

This friend works for a company as self employed but I'm 99% sure they should be putting her through PAYE.

My question is what would happen if she takes them to court and wins?

Will they have to give her a contract?
Will they have to pay her tax/NI? (For the time they've been treating her as self employed)
Will they have to give her holiday pay? (Back dated)

In reply to Bib:

It took several years in court and millions of £s in legal fees for a single plumber to secure an answer to that question last month. I'm not sure you'll get a conclusive answer here.

The short answer is that it depends on the circumstances of the engagement. And your friend should be aware that a switch to PAYE employment would likely bring about a change in the headline remuneration with the value of the employer's NI, holiday and sick pay (currently your friend's responsibility) being deducted from the salary offer under the new deal so as to leave the employer cash neutral on the switch.

This is what happened when the Labour government brought in the Working Time Directive on temporary employment. Take home pay rates didn't go up. Holiday pay simply became an 8% top-up to a pay rate at of 92% of the previous level.

In reply to BnB:

Hi, thanks for the reply.

So I don't think the Pimlico Plumber case applies directly here (parts maybe do..). The guy was put in a category between PAYE employee and self employed - basically he was defined as a worker but was still responsible for paying his own tax. I think my friend should defintiely be on PAYE*. My question is, assuming she should be treated as PAYE, what will happen if/when she's proves she should be PAYE?

*There's an assessment questionnaire on HRMC and I've filled it in as generously to the employer as possible and it still comes up that she shoudl be on PAYE.

In reply to Bib:

My understanding is that if HMRC decide the employee should have been on PAYE, they can deem retroactively that they were, and deem the wage paid to be that after the tax and employer's NI have been deducted, and then they bill the company for that tax and NI on the adjusted (higher) wage.

This was drummed into us by an advisor when running a small company and looking at ways to pay people.

Not a direct answer to your question I'm afraid but perhaps a good reason for the company to change their behaviour...

In reply to Bib:

IR35 says they should be on payroll. Employer is liable. Tell friend to speak to HMRC

In reply to JJL:


Very dangerous advice. HMRC is just as likely try to investigate self employed worker's own arrangements!!

In reply to BnB:

And if they've paid tax propoerly, that won't be an issue

In reply to JJL:


If you've ever experienced an audit by HMRC (running a healthy-sized business, I've had four) you'll understand that knowing you've discharged your obligations faithfully is no guarantee of a good night's sleep over the months it takes.

In reply to Bib:

The issue it seems is if they are genuinely self-employed or not. A number of factors will be used to assess this.
What the paper work says (ie contract, job advertisement etc.), If they provide their own equipment, if they can supply a replacement to carry out the work, if they have any helpers, if they are taking a financial risk or not, if they are receiving sick pay etc, are they responsible for their own expenses, and are they responsible for their own tax and insurnace?
To lose benefits, such as sick pay, holiday pay etc., a person must be genuinely self-employed, carrying out a profession or business on their own account, under a contract to supply those services to their own clients and customers.
The Hospital Medical Group Lts. V Westwood [2012] EWCA Civ 1005 highlighted the distinction between a genuinely self-employed person - someone who markets their services independently and at arms lenght to the world in general - and someone who is recruited by a business as a contractor to work as an integral part of its own operations, providing services to the customers of that business. Only the first individual will be genuinely self-employed.

In reply to Bib:

However you asked what happens if she takes them to court and wins?
This is a pretty open question. It depends.
First of all it depends on the strength of the case and how she deals with her case (self-funded, legal aid, union. etc.)
But we are assuming that she won. So ....
As far as I am aware they don't have to give her a contract. They are more likely to dismiss her (employer/employee relationship breakdown etc.0
The tax issue depends on how tax has been paid in the interm period. Has she been paying tax? I am not sure that she would get a rebate and HMRC ask her company to pay back tax? Sounds complex and given that (I assume) HMRC already have the money they may not want to get involved in a complicated court case.
Theoretically they should pay her holiday pay but getting them to do it is a different matter and may involve further court proceedings

In reply to BnB:


Fair point - but in this case the friend is self employed and works for another company to the extent that they should be on payroll...

In reply to Bib:

Duncan Bourne is spot on. There's no one test to decide.

But from your question do I take it that she wants to be classed as an employee?
And relevant to the employer's possible responses, does she have more than two years service with them?

In reply to Dave Perry:

No she's been there a year. How does that affect things?

In reply to JJL:

Yes, she gets minimum wage so tax/NI won't be much or complicated

In reply to Duncan Bourne:

Hi, no she's not paid any tax or NI yet. She's worried about liekng on her tax return by saying she's self employed when she's not.

In reply to Bib:


If I were an HMRC tax inspector reading this thread and noting the use of anonymity as well as comments like this one I'd be thinking:

"Someone spent all the money they should have put aside to pay their tax bill and now they're trying to shift the blame."

The two issues of a) having to pay your tax under Schedule D and b) whether you enjoy employment rights, these are not connected to the extent of absolving anyone from the obligation to observe a) while b) is resolved.

In reply to Bib:


Agreed. But I do suggest you ponder my comment above.

In reply to Bib:

Rights when you apply for a job

You should not be discriminated against in a job selection process on the grounds of your trade union membership, sex (including pregnancy/ maternity status), race (including nationality), disability, age, sexual orientation, religion/ belief (including lack thereof), or being transgender.

Rights from your first day at work

You should be given a written statement of particulars showing how much you earn and any deductions that will be made from your pay. (Some or all of the information required to be set out in a written statement of particulars may be contained in a contract of employment, rather than in a separate document).
You have a right not to have deductions (with some exceptions such as for tax) made from your pay unless your employer has the contractual power to make the deductions and you have agreed to them in advance.
If you are paying National Insurance contributions (applies to anyone earning over £112 per week (from April 2015)), you can claim Statutory Sick Pay after you have been off sick for four days in a row.
You have the right not to be discriminated against on the grounds of your trade union membership, sex (including pregnancy/ maternity status), race (including nationality), disability, age, sexual orientation, religion/ belief (including lack thereof), marital or civil partnership status, or being transgender.
You have the right to ask for reasonable adjustments if you have a disability.
You have a right to equal pay with members of the opposite sex doing the same job, a similar job, or a job of equal value to you.
You are entitled to 52 weeks’ maternity leave, even if you were pregnant when you started the job.
You have the right to 52 weeks’adoption leave.
You can have time off for medical appointments if you are pregnant.
You can take unpaid time off to go to two antenatal appointments with your partner.
You have new rights to time off for adoption appointments.
You can take unpaid leave to deal with unexpected emergencies involving family members or people who rely on you for their care.
You have the right for your trade union to be recognised by the employer to negotiate your working conditions if at least 10% of the people in your department/ workplace are members of that union and the union can show that the majority of employees in that department/ workplace are likely to support it being formally recognised.
You have the right to take a trade union representative or fellow worker into a disciplinary or grievance hearing, and into a meeting to request time off to train.
You can claim wrongful dismissal if your employer sacks you without giving you the agreed notice.
Although you need more service before you are able to claim general unfair dismissal, you can already complain about dismissal on certain grounds (e.g. dismissal for whistleblowing, or on the basis of a protected characteristic such as your race or trade union activities).
You have a right not to be unfairly dismissed for your political views.

Rights after a month

You must be given one week's notice of dismissal (or more, if your contract entitles you to longer notice).
You must be paid if you are suspended on medical grounds.
You must be paid wages if you are laid off (this is where your employer has asked you to work for at least a day less per week than usual).

Rights after eight weeks

You are entitled to a written statement of your terms of employment which must include your pay, hours, where you are expected to work, holidays and other benefits such as a pension entitlement.

Rights after two years' service

Once you have been working for two full years, you can claim unfair dismissal in the employment tribunal.
If your employer dismisses you just before you have worked the full two years needed to claim unfair dismissal, an employment tribunal will add to your service the statutory notice your employer should have given you (unless you were dismissed for gross misconduct). This is to stop employers deliberately cutting short your notice to prevent you from bringing a claim.
You can claim statutory redundancy pay if you are dismissed due to redundancy. The amount of redundancy pay due depends on your age, your pay and your length of service.
You have a right, on request, to written reasons for your dismissal. If you were dismissed because of pregnancy, maternity or childbirth, you have this right from day one of your employment, whether or not you make a request.

The time limits for bringing claims in the employment tribunal are very short and very strict.

Before bringing a tribunal claim, you must fill out an Early Conciliation Notification Form and send it to Acas.

You can find information from Acas explaining how Acas early conciliation works here. Acas early conciliation is free of charge.

Unless you take this first step within the time limit for bringing your tribunal claim, you will not be allowed to bring it.

There are now tribunal fees for all employment tribunal claims. A few low-paid claimants will qualify for help with their fees (i.e. some or all of the fee will be waived). This is known as 'remission'.

link
https://worksmart.org.uk/work-rights/basics/when-your-rights-start

In reply to Bib:


Then the big question is "has her employer being paying tax/NI on her behalf?". I presume that she has some record of payment that would list what deductions have been taken out. The fact that she is being paid the National Minimum wage suggests that she is not genuinely self-employed as the "genuinely self-employed" are part of the excluded group for entitlement to NMW. The law requires the employer to keep adequate records of payment and under the Employment Rights Act 1996 (ERA 96) every employee is entitled to an itemised pay statement.
If they are paying minimum wage then it does suggest a "sham" self-employed status. Proving it might be tricky though

In reply to Duncan Bourne:


I think it's pretty clear that the engager isn't making any PAYE or NI payments or the whole thread would be redundant. Aren't they just paying minimum wage because that's the market level, rather than the wage settlement having necessarily anything to do with sham employment?

Nevertheless, to adopt HMRC's new terminology to describe illegitimate off-payroll working, a year's engagement on minimum wage "looks and smells" like employment to me.

In reply to BnB:


That's what I thought.

In reply to Bib:


Stop worrying then. At this point she is self-employed.

In reply to Dogwatch:


Hi, could you explain a bit further, the HMRC guidance is pretty clear that she should be PAYE?

In reply to Duncan Bourne:

Thanks for that. I'll try ACAS

In reply to bib:


"Should" perhaps, but currently she certainly isn't!!

In reply to Duncan Bourne:


No. They've told her she needs to pay it.

She gets slightly above minimum wage and slightly above what her colleagues on PAYE get.

She's definitely not self employed under HMRC's guidlines. Not the question I'm asking but the one everyone seems to want to answer! Genuinely thanks very much for all the helop though - really appreciated. Will be asking ACAS.

In reply to BnB:


This is what I'm struggling to understand.

If the conditions of her work do not qualify her as self employed then, and they mean that her employer should pay PAYE and give her employee rights, then surely she is employed, even if her "employer" haas not/refuses to acknowledge this?

(Obviously this would depend on being able to prove said conditions in court - please, for the sake of argument, assume that she could)

In reply to bib:

The borders between the two modes of engagement are blurred and many are the instances where both could apply. It does rather feel as though PAYE should apply but, meanwhile, she's self employed until employer agrees it, or is forced to do so. And, up until that point, she must comply with the law on self-assessment of tax dues.

If, as you pointed out earlier, this is not going to be burdensome, the sums being relatively small, it begs other questions. If you were hoping to settle this by legal action, your tax return is going to very late by the time it is resolved. I'd probably just look for a better job with a more conscientious employer and move on.

In reply to bib:


"Should be" is irrelevant to the tax return. The only question there is does she have a contract of employment, yes or no. To which the answer, apparently, is no.

Is a funny old world. Many in my line of work would be very pleased indeed to be considered self-employed. Your friend seems determined to go the opposite route.

In reply to Bib:

If she started the job knowing that it was supposed to be 'self employed' even though it's probably incorrect, she should mark this on her tax return & pay her tax. Then bring this to the attention of her employer / customer and ask to go on the payroll as an employee from now on. She can use the information you have from the HMRC website to demonstrate that she should be employed. If they refuse then I guess she has to decide whether to progress this legally or not, considering that she could lose the job completely if she does that (although still make a point).

In reply to Bib:
She has no unfair dismissal rights so the employer could simply terminate her employment with no worries about a possible tribunal.