Everything you need to know about contractors holiday entitlement

Experts are now warning companies of a slew of legal action from freelancers classified as ‘workers,’ after a contractor settled her case with HM Revenue & Customs for thousands of pounds in September 2018.

 

Marketing and business development consultant Susan Winchester lodged a claim for 4,200 pounds in unpaid holiday against HMRC and four other parties at Central London Employment Tribunal. Her argument that she was being mistreated being classified as a worker by the organization for tax purposes but denied crucial worker’s rights in return caught the attention of many organizations in the UK, who welcomed the move and considered this case the tip of the iceberg.

Before exploring the eligibility to receiving a contractors holiday entitlement, know that individuals working in the UK fall under one of the three domains:

 

1. Employee: The status of an individual working with full employment rights and obligations.
2. Worker: An individual who has limited rights, but holiday pay is one of them.
3. Self-employed individual: A person such as a sole trader, freelancer, or independent contractor in business or their account.

 

An updated account of holiday rights

In 2017, the case of King v The Sash Window Workshop Ltd centered around the fact that the former was engaged as an independent contractor for 13 years. During this time, Mr. King was not paid for any leave and consequently, in some years, he had not taken any leave. An employment tribunal discovered that he was falsely categorized as a ‘worker’ by his employer.

The issue then was that how much holiday pay he was entitled to. The ECJ (European Court of Justice) decided that a worker should be able to carry over their paid annual leave to accumulate it until the termination of their employment in such cases where the employer has failed to provide leave and the worker has been unable to exercise their rights over several consecutive years. The worker was allowed to successfully claim 13 years’ worth of holiday amounting to 27,000 pounds.

 

What does this mean for freelancers, contractors, sole traders, and the self-employed?

At places where there is no disputing the fact that an individual is, in fact, a self-employed person, then there will be no impact on the individual or the employer, meaning there will be no contractors holiday pay entitlement for that individual.

However, if an individual is being treated as a contractor when they are, in fact, a worker, then the contractor may be able to bring a case against the employer. Any review of the case would focus on, first and foremost, whether the contract correctly reflects the work and engagement.

Here are a few criteria that can help decide the status of a working individual:

 

• A Mutuality of Obligation- meaning the engager is obligated to provide work to the contractor and the contractor, in turn, has the obligation of accepting and delivering said work- will cancel any suggestion of an employment relationship.
• If the contractor can send a substitute to carry out the work or use a subcontractor, then it indicates the individual is an independent contractor and the contract is not of personal service.
• The level of control of the employer toward the individual- whether the business controls how and where the individual works, whether the business provides the equipment, training, and premises to perform the work- also determines the status of the individual.
• How integrated the individual is with the enterprise. Meaning, whether or not they use the canteen services, parking services, etc., further determines their role in the organization.
• The financial risk of the individual- whether they are running a business on their own account- meaning if an organization does not pay, they bear the financial hit of not being paid.
• Whether the contract states that the individual can only exclusively work for the organization indicates employment. However, if the individual is free to work for more than one business, it indicates that they are self-employed.

 

If someone is already being treated as a worker by their employer, they have a statutory entitlement to 5.6 weeks’ paid leave a year. With respect to holiday pay, this is the same as it is for employees.

For workers with a fixed number of hours and fixed pay, a week’s holiday pay equals the amount they get for a week’s work. For shift work with fixed hours, a contractor is entitled to a week’s holiday pay equalling the average number of hours they worked in the previous 12 weeks ad the average hourly rate. In cases where a contractor is engaged for no fixed hours, a week’s holiday pay is the average pay they received over the previous 12 weeks (wherein they were paid).

 

What does this mean for businesses engaging self-employed persons, freelancers, and independent contractors?

 

This recent changes can prove highly relevant for an organization that uses freelancers and independent contractors. Where the business relationship is established on clear guidelines that the individual is, in fact, a self-employed person, the individual will not be entitled to any contractors holiday entitlement.

If there is a risk that the individuals may be classed as workers, they might be free to claim for holiday pay and covering the entire length of engagement on termination.

To mitigate the risk of potential claims for holiday pay, the engaging entity should ensure there is no risk of the individual being classed as a worker. The best way for engagers to do this is to take professional legal advice and ensure they correctly reflect business associations with contractors and freelancers.

 

 

UK’s government is keen on promoting awareness about contractors holiday pay entitlement. This might be the time contracts get more empowered and demand what they are entitled to. And, this might also be the right time for employing organizations to comprehensively analyze their workforce and ensure they have the correct documentation in place that reflects the nature of the relationship with each individual.