Am I employed, self-employed, both, or neither?

Employment

Whether you are employed, self-employed, both or neither will make a difference to the amount of tax and National Insurance contributions (NIC) you pay, as well as how you pay. You need to know which of these apply to you, so that you can comply with your tax obligations and claim tax reliefs available to you. On this page, we tell you where you can find out more about employment status and discuss your position if you work through an intermediary like an agency, umbrella company or limited company.

Am I employed or self-employed?

When you start working for someone, it is their obligation to understand whether the law sees you as their employee or sees you as self-employed – your employment status – in order to decide whether they need to operate Pay As You Earn (PAYE) on your wages.

There is no straightforward legal definition of what it means to be employed or self-employed. There is information on the issues to consider and what to do if you are unsure if you are being treated as employed or self-employed properly, in the self-employment section. We also give more information on the following topics in that same section:

  • when you are likely to be employed;
  • when you are likely to be self-employed;
  • what to do if you are still unsure of your employment status;
  • whether you can be employed and self-employed at the same time;
  • whether you can be neither employed nor self-employed;
  • where you can find more information.

Employment status is also important for working out what employment law rights you have. Employment law status is different from tax law status. Tax law only recognises two types of status – employed and self-employed. For employment law, there are three potential statuses to consider – employee, ‘worker’ and self-employed.

Some information on deciding employment law status can be found on GOV.UK.

I am working through an agency – what is my position?

Some people find work through a temping agency.

In a typical temping agency situation, an agency will supply you to an ‘end client’. You will usually perform tasks under the day-to-day supervision of someone at the end client location but will send time sheets to the work agency, who will pay you.

Technically, you are usually neither an employee of the end client nor of the agency, however under a special tax law rule, the temping agency is usually deemed to be your employer (see below for an exception) and is responsible for deducting income tax and National Insurance contributions (NIC) under PAYE from the salary paid to you. They must also pay employer NIC. This is a cost to the temping agency, but it is usually covered in the fee that is charged to the end client by the agency.

In terms of employment law (which is a bit different from tax law) agency workers are usually ‘workers’ for employment law purposes (the category that falls somewhere between employee and self-employed) and as such are entitled to basic protections, such as being paid at least the national minimum wage (NMW) or national living wage and working time entitlements such as paid annual leave). You can find information on your rights as an agency worker on GOV.UK.

Under the Agency Workers Regulations (AWR), agency workers are also allowed to use any shared facilities (e.g. a staff canteen or childcare) from the first day they work in an assigned location. After 12 weeks’ continuous employment in the same role, agency workers get the same terms and conditions as permanent employees, including pay, working time, rest periods, night work, breaks and annual leave.

You can find out more about the AWR on GOV.UK. There are rules in place that aim to stop businesses from no longer using agency workers as they get near 12 weeks of continuous work. If you think you have been unfairly treated, you should contact ACAS on 0300 123 1100 (Text Relay 18001 0300 123 1100). There used to be an exemption from the 12 week rule where the agency worker was on a ‘pay between assignments’ contract, however from April 2020 this is no longer allowed.

⚠️ Note: If you are taken on by a temping agency on or after 6 April 2020, you will be entitled to a written statement of employment particulars on or before your first day. In addition, from 6 April 2020, agencies will be required to provide new agency workers with a document known as ‘a key information document’ prior to signing them up. This is intended to help agency workers understand how much they will be paid (once all the fees and deductions in the supply chain have been taken into account) and by whom (for example, an umbrella company) – so that they can make informed decisions about whether to take the work. You can find more information on GOV.UK

If you have a problem with a temping agency, then you can complain to the Employment Agencies Standards Inspectorate (EAS). You should also check if the agency is a member of a membership body for recruitment agencies such as the Recruitment and Employment Confederation (REC) and the Association of Professional Staffing Companies (APSCo), as they would probably be interested to hear of any problems with their members.

Introductory agencies

An introductory agency is one that assists you to find a permanent job by matching you with a potential engager. However it then has no further part to play in the arrangement and is not responsible for paying you after it has introduced you to a hirer. In this situation, it is for the engager you are matched with to pay you and also to decide if you are employed or self-employed and operate PAYE accordingly.

The special tax law rule mentioned above (where the temping agency has to operate PAYE) does not apply in genuine introductory agency situations. However, just because the special tax law rule mentioned above does not apply to make the agency your deemed employer, this does not mean that you are automatically self-employed for all purposes. All it means is that the agency is not your deemed employer. The engager you are matched with may still be your employer under general principles.

I incur lots of travel expenses as an agency worker – am I entitled to any tax relief?

Even though you may work on lots of different engagements and may incur substantial travel costs in getting to your various work locations, another special tax law rule says that agency workers are not normally entitled to tax relief on the travel and subsistence expenses they incur. This was one of the reasons for the emergence of umbrella companies in the temping industry – more on these below.

Travel expenses for agency workers are usually tax deductible if they are incurred while working (as opposed to getting to work) and include:

  • Trips from your assignment office or other work location to visit a customer or other workplace, and can also include travel directly from your home to visit a customer or to another workplace (unless the journey is practically the same as the journey from your home to your normal place of work, for example, because the customer lives near your office).
  • Travel expenses of those who have a ‘travelling appointment’ (that is, where the duties themselves inherently involve travelling) such as a delivery driver or meter reader, are also allowable. A person who holds a travelling appointment can get relief for all their travelling expenses (even where the journey starts from home!). Where he or she has to attend an office or depot at the start and end of the day to report in or receive instructions say, travel between there and home is not allowable.
  • Although not ‘travelling appointments’ as such, HMRC also accept that travel expenses of agency workers who undertake a number of different jobs for an end client on the same day are allowable. This rule is intended to cover people such as home care nurses or domestic cleaners. In these cases, HMRC say that they will accept that the cost of travel between different jobs on the same day is allowable, however they will not accept a deduction for the cost of travel from home to the first job of the day or to home from the last job of the day. (Note there has recently been a case where HMRC’s stance on this has been called into question.)
  • Following on from this, they also accept that when an agency worker incurs expenses in travelling between the premises of two or more end clients in the course of a day, the expenses of travelling from one to the other are allowable provided that the end clients were all obtained through the same agency, and the worker starts and finishes the day at his or her own home.

Example

Neil lives in Reading and works for a construction temping agency. The agency arranges for him to work for a week as a labourer on a property development in the former athletes’ village in the Olympic Park. On day 3, he gets a call from the agency telling him to drop what he is doing (they have cleared it with the property developers) and spend the afternoon at the Maidenhead crossrail site as someone has phoned in sick and they urgently need an extra pair of hands. Neil gets in his car after his morning’s work in East London and drives about 66 miles round the M25 and up the M4 to Maidenhead. Generally, travelling expenses between two different ‘employments’ are not allowable, however under HMRC’s special rule they will probably accept a claim for the 66 miles in these circumstances. Neil can use the HMRC approved mileage rate of 45p per mile (for the first 10,000 miles and 25p thereafter), as the basis of his claim, worth £29.70. Neil can make a claim for tax relief at the end of the tax year, resulting in a tax refund of £5.94 (£29.70 @ 20%, as Neil is a basic rate taxpayer).

We provide further help and guidance on claiming back expenses, including a link to an annotated example of form P87 (the form you use to claim them), on our page What if I pay too much tax?.

Can I be a ‘self-employed’ agency worker?

Some temping agencies used to try to avoid having to operate PAYE for workers – this meant that their costs were reduced.

They did this by saying (or by using arrangements that said) that the worker was ’self-employed’, so that the worker has to pay their tax and NIC to HMRC themselves and there was no employer’s NIC to pay.

However, treating a worker as ‘self-employed’ when they should actually be treated as an ‘employee’ left the worker in a vulnerable position and meant that the government was losing money.

Since 6 April 2014, the government has tightened up the rules to prevent ‘employment intermediaries’ (temping agencies and other businesses involved in the supply chain), from being able to do this so easily. The special tax law rules essentially say that the only time an employment intermediary can escape operating PAYE is where the worker is under NO supervision, direction or control (or the right thereof) by any party as to the manner in which they undertake their work.

⚠️ Note: This test applies to agency workers working in the construction industry even though they often have their taxes deducted at source anyway (under CIS). Only if a worker is not caught under the supervision, direction or control test can an agency operate CIS rather than PAYE.

You can find HMRC’s guidance on supervision, direction or control on GOV.UK. It is likely that you would be under supervision, direction or control. Temping agencies are expected to report any payments made where they do not operate PAYE to HMRC. They also need to provide details of the workers and why PAYE was not used.

It may be tempting to turn a blind eye if PAYE is not being operated on your wages, as there may be perceived benefits to being ‘self-employed’. However, unless you are genuinely self-employed, it is best to tell the business paying you, that you want to be dealt with under PAYE, so as to protect yourself from any problems with HMRC later down the line. If they will not do this, you may decide to report them to HMRC so that their practices can be investigated.

You should be aware that recently, a variation of this arrangement is being used in the temporary worker industry. This ‘hybrid’ variation sees you being treated as an employee for tax purposes (so that PAYE is operated as is required under the special tax law rule) but you are being treated as self-employed for all other purposes.

This ‘elective deductions model’ or EDM, exploits the fact that employment law and tax law are different. In employment law you have three categories of person – employee, self-employed or ‘worker’. In tax law you only have employed and self-employed. Usually people have the same status for both employment law and tax law, however this is not always the case.

Self-employed people do not have the rights and protections that ‘workers’ have under employment law (remember agency workers are usually ‘workers’ and are very unlikely to be genuinely self-employed for employment law purposes). Putting workers in these ‘EDM’ arrangements saves the employment intermediaries concerned money, however, is unlikely to benefit you in any way at all (in particular your key rights like minimum wage, holiday pay and auto enrolment are bypassed). As such, you should think very carefully about accepting such terms and conditions.

How can I better manage my tax position if I am an agency worker?

Due to the way the system works, PAYE may not always operate smoothly for agency workers who change temping agencies a lot.

Example

Jazz signs up for a marketing agency and starts an eight-month long assignment for them in April 2022 during which she earns £1,200 per month. A tax code of £1257L is allocated, which tells the agency she can have £1,048 of tax free pay each month and that tax of £30.40 is due on the rest (over eight months this equals £243.20). She has a few months off, then finds an assignment through another agency (she wants to stay on the books of the first agency in case they come up with a better role). Because this is technically a second job, a BR tax code will be allocated meaning 20% tax is deducted on every pound. She earns £250 a week for 8 weeks. Her weekly tax deductions are therefore £50 (£400 in total over the 8 weeks). At the end of the tax year, because of the availability of the £12,570 personal allowance, Jazz has overpaid £643.20 tax (that is, everything that was deducted). This will eventually be refunded to her by HMRC after the end of the tax year.

However, there are a number of simple things that agency workers can do to help ensure PAYE operates as smoothly as possible for them throughout the year:

  • If you have decided to finish with an agency, do not just assume that they will know to close down your payroll record once your last assignment has finished. Make sure you inform them you are leaving and request your P45. Unless you do this, the agency may consider that you are available for work and will keep you on ‘the books’ until they carry out a database cleansing exercise. This means 1) that you will not be able to provide your new employer with a P45, meaning an emergency tax code will need to be used and/or that 2) HMRC will have a ‘live’ employment record for you, meaning that they may consider a 20% flat rate deduction appropriate for your new job.
  • On the other hand, if you have not worked for an agency for a while, but don’t want your P45 – you should keep in touch with the agency, as if you don’t make contact for some time, then the agency may issue a P45 in line with HMRC’s guidance that unless an ‘irregular payment’ indicator is set on an employer’s payroll system for a particular employee, there will be an automatic cessation of the individual’s employment record should the employer stop sending payroll information for a period of time.
  • Sometimes the issue of a P45 by a former agency can be delayed (often due to large numbers of workers coming and going). It may be useful to know that by law, you must be issued with a P45 as soon as possible once you have finished your job. P45s may now also be issued electronically (for example as an email attachment) – hopefully making it easier for you to get it.
  • When you receive it, keep your P45 somewhere safe so you are able to provide it to your new employer – this may sound obvious, but please be aware that it is not possible for employers to issue duplicate P45s in the event that the original is lost or destroyed.
  • Where you do not provide a P45 or a starter checklist, emergency tax will likely take the form of a flat rate 20% deduction (code ‘0T’ – meaning you have no personal allowance allocated to you), even if you only have one job; however this can be displaced by providing your P45 or a starter checklist to your new employer.
  • If you are on the books of two agencies, consider if you can split your personal allowance (we explain more about this in our guidance on having multiple jobs).

What if I’m asked to work through an umbrella company?

Many agencies don’t like operating PAYE for the people they find work assignments for and so they ask them to work through an umbrella company, in order that the umbrella company can take on this function. See below for more information on umbrella companies.

A good agency should make sure the umbrella company they are handing you to meets all its legal responsibilities. They should also make sure they hand over sufficient funds to cover all the employment costs that the umbrella company will now have. This includes the gross pay rate advertised to you (‘the agency rate’) plus all of the costs of employment (for example holiday pay, employers NIC, auto enrolment costs) and the margin. These things together make the ‘umbrella company rate’ (the rate paid by the agency to the umbrella company). This money becomes the umbrella company’s income, from which they will then pay you your wage. It is important that you are clear on what rate your agency is quoting you to work through an umbrella – is it the ‘agency rate’ or is it the uplifted ‘umbrella company rate’. It should be the latter (uplifted rate).

The following example explains how this works:

Bob’s agency finds him an assignment for £175 a day (gross). On top of this, there are employment costs for the agency of about £55, meaning that the amount the end-client pays the agency is £230 (plus a margin). If the agency pays only the £175 to Bob’s umbrella company, then Bob is going to be very disappointed when he gets his first payslip, as he will see that all the umbrella’s employment costs have come out of the £175. Bob needs to make sure that the agency pays the umbrella the £230 they received from the end client.

Unfortunately, some agencies do not uplift the rates properly. Some can also be incentivised by a commission into encouraging you to join up to certain problematic umbrella companies (more on this below), and in these situations, if you are unhappy or uncertain about what you are being asked to sign up to, you should think very carefully about how to proceed.

I am working through an umbrella company: what is my position?

Sometimes an agency will ask you to work through an umbrella company. An umbrella company is an employment business that takes on agency workers as its own employees. Thus, if you are working through an umbrella company, you normally become an employee of the umbrella company. They then have to deal with your pay, tax, and other legal obligations, just like any other employer.

You can read more about umbrella companies in our factsheet on working through an umbrella company, which we have created in partnership with PRISM, a not for profit umbrella company representative body.

The factsheet covers a range of issues on which workers are likely to have questions including holiday entitlement and other employment right issues, the availability (or otherwise) of travel expense relief and why they may have been handed over to an umbrella company by an agency in the first place. It includes a helpful diagram explaining how umbrella companies work, a sample payslip to help demystify the sometimes confusing payslip entries and links to more help, including an article written for IWORK website, in which we explain some of the terminology used in the umbrella company sector for those new to this way of working.

Very importantly – on the basis that workers passed to an umbrella company should be offered an ‘umbrella company rate’, which should always be higher – it includes a ‘ready reckoner’ to help workers understand whether the rewards they are being offered through an umbrella company are roughly equivalent to what they might have otherwise received, once the various deductions the umbrella company has to make have been considered.

Travel and subsistence

Traditionally umbrella company employees enjoyed tax and NIC relief on their home to work travel expenses (something not available to agency workers), due to the special type of employment contract they worked under – an ‘overarching’ contract of employment (or an ‘umbrella’ contract).

Essentially, these contracts provided a framework within which a worker’s successive work locations could be turned into ‘temporary workplaces’, supporting the payment of non-taxable and non NICable home to work travel expenses to them by the umbrella company. To the extent that these expenses were paid to workers in lieu of ordinary taxable salary (as opposed to on top of it), there was also an employer NIC saving of 13.8% on the value of the expenses.

Since April 2016, the rules around relief for travel expenses from home to work if you work through an umbrella company have been really tightened up. You can read more about some problems with umbrella companies that led up to the April 2016 change in our report.

The April 2016 rules say that relief for home to work travel and subsistence expenses is restricted where a worker:

  • personally provides services to another person
  • is employed through an employment intermediary (such as an agency or umbrella company)
  • is under the supervision, direction or control (SDC) of any person in the supply chain (or the right thereof).

If all of the above apply, each engagement the worker undertakes will be a separate employment for the purposes of obtaining relief for travel and subsistence; that is, the overarching contract is ineffective (resulting in the same approach as is already applied to agency workers).

  • You should note that even where travel and subsistence expenses could still be allowed for tax purposes, for example because of multi-site visits, different rules mean that an umbrella company should probably not be reimbursing your expenses (apart from, possibly, mileage expenses) on a tax and National Insurance free basis as part of your normal pay.

But all of this makes it more expensive for the umbrella company to employ you as they cannot claim employer’s NIC relief on your travel expenses.

To get round the new rules, some unscrupulous businesses may try and say that you are not under the supervision, direction or control of any person (which would be highly unlikely unless you are genuinely self-employed) so they can continue making use of the special mileage expense rules; or even try and pay you in ‘loans’ or use other non-compliant arrangements such as those we describe below.

Non-compliant arrangements

There are a huge number of umbrella companies out there and so the marketplace is very competitive. In order to win customers and generate profits, they often come up with new models to try to get round the rules introduced by government.

In particular, at the moment (and in addition to the poor practices around ‘travel and subsistence’ we are aware of as described above) we understand that the following non-compliant umbrella company models are currently in operation for low paid workers:

Elective deductions model: as explained above. This is a very harsh model which does not benefit workers at all. The problem, however, is that there is not an overarching body looking after employment law (HMRC only look after tax law). This makes the question of who people should complain to if they disagree with their employment law status unclear. (If you are affected, as a first step, you could try talking to ACAS or the Pay and Rights helpline.)

Wage theft: because of problems inherent in very short-term agency work when it comes to calculating holiday leave and pay, workers used to get extra pay on top of their hourly rate instead of being given paid holiday. However, this ‘rolled up’ system has now been deemed unlawful, meaning many umbrella companies accrue holiday pay for workers instead and pay it out at the time the annual leave is taken. If a worker is not on a rolled up system and leaves an umbrella company having taken fewer holidays than they are entitled to, they should be paid in lieu of the untaken holiday – but it is our understanding that this does not always happen. It seems there can also be problems if holidays aren’t taken by the end of the holiday year.

Cloning and Cyber attacks: Cloning and cyber attacks are two risks for workers to be aware of. We outline the risk in our February 2022 umbrella company market Call for Evidence response.

Mini-umbrella companies: this model sees the formation of lots of individual companies, often with foreign nationals as directors. On the face of it, all is well as the worker will be having PAYE operated. However, in the background, workers are being put into mini companies, where the Employment Allowance is being claimed inappropriately. Despite an HMRC spotlight, and media/press attention, we have recently heard of someone seemingly in mini umbrellas – the key giveaway is that each of their payslips had a different PAYE reference. Further guidance which should be useful for workers can be found on GOV.UK.

Payroll-fraud: it would appear that some umbrella companies are calculating and taking deductions from people’s pay based on one set of (proper) pay figures but are then understating these pay figures in their submissions to HMRC thereby reducing the tax/National Insurance amounts that are calculated and that they pay over. If you work through an umbrella company, it is a good idea to check your Personal Tax Account regularly to make sure that the pay and tax details being submitted to HMRC by the umbrella company match your payslips.

Non-taxable payments: some highly aggressive umbrella companies set up arrangements where, instead of receiving normal taxable pay, workers receive payment in the form of artificial ‘non-taxable’ loans, investment payments, grants, credits and so on. This is very likely to be disguised remuneration (tax avoidance) – we explain more about it in our news article Agency workers: being promised the world by an umbrella company? Don’t fall for it!.

Any umbrella company that appears to offer higher than expected take home pay should be avoided as it is likely that they are doing something that is just not right, which may include operating this type of arrangement. You need to be really vigilant about being offered payment in the form of loans, grants, advances etc. (even if the arrangement has a ‘QC’s opinion’ or appears to have been ‘approved’ by HMRC – both of which really mean very little in this context).

As explained at the end of our recent article, HMRC probably will not go after the umbrella company for unpaid tax (they may not be able to as the umbrella company could be based offshore or could simply fold); they will go after you.

Some umbrella companies may pay you in non-taxable elements without your knowledge, as we explain below. You need to be extremely wary about being exploited in this way.

(If you have been in loan arrangements in the past and are now affected by the ‘loan charge’, we have published a series of articles looking at the situation in some detail, what it is, what is happening and where to get help – you can find the date they were published under the title.)

How can I avoid getting caught up in disguised remuneration?

Sometimes umbrella companies use disguised remuneration arrangements to pay their employees without making it clear that they are doing this. Such arrangements reduce their employer costs and obligations so there is a benefit to them of doing this.

Some possible warning signs of disguised remuneration schemes for you to be wary of are:

  • Arrangements that offer to let you keep more of your pay than you normally would
  • A contract of employment showing that you’ll only be paid the National Minimum Wage, when you know you’ll be paid more than that
  • An agreement where you get payments that you are told are not taxable
  • Perhaps receiving more than one payment into your bank account each pay period
  • Perhaps paying a hefty fee – which you won’t be able to get back if the arrangements don’t work
  • Confusing or unclear paperwork (contract/payslips etc.) – or none at all
  • Information in your Personal Tax Account about the pay and tax details being submitted to HMRC by the umbrella company that do not match what you are being paid per your bank statements.

We set out the problem in more detail and what to do if you think you are in a disguised remuneration scheme in a previous article.

Not all umbrella companies act non-compliantly, but you should ensure you check any arrangements carefully. If you have concerns about a certain umbrella company, you should ask if you could use a different one. You should be aware that some agencies are incentivised by a commission into encouraging you to join up to certain umbrella companies, so they may push back. If this happens, you need to think very carefully about how to proceed. You may decide to report them to HMRC so that their practices can be investigated.

You should also check if the umbrella company is a member of a membership body such as Professional Passport or the Freelancer & Contractor Services Association (FCSA), as they would probably be interested to hear of any problems with their members.

If you are in an umbrella arrangement that you do not understand or that seems different to what we have covered here, please let us know, as this will be very useful to feed into our work.

Where can I find more information on umbrella companies?

We published a factual report looking at the umbrella marketplace in 2021. The title is: ‘Labour Market Intermediaries: A technical report outlining how umbrella companies and other intermediaries operate in the labour market and the implications for workers who use them’.

The purpose of this report is to look at two areas:

  • The nature and scale of the use of labour market intermediaries, for the large part, focusing on better understanding the use of umbrella companies.
  • The nature and scale of the use of disguised remuneration schemes that are used to pay workers instead of traditional wages.
  • The report will be useful for a wide variety of stakeholders – including workers – who we hope will be able to use it to help inform themselves, navigate the system and protect themselves.

Tips on umbrella company working from LITRG

We are concerned about the lack of understanding about how umbrella companies work by the workers who use them. We are offering people the following tips on how to find a safe, compliant umbrella company. These tips come from what we have learnt through our research into the marketplace.

  • There is no single definition of an umbrella company. Anyone can set up a company and label itself an umbrella company. Some umbrella companies are not compliant with employment and tax law and the sector is currently unregulated. It is vital that you are on guard.
  • In particular, be aware that some agencies are incentivised by a commission into encouraging you to join up to certain umbrella companies. Do not go with an umbrella company just because it is on your agency’s Preferred Supplier List, or just because it has certain accreditations – you still need to do your research thoroughly.
  • Be clear on what rate your agency is quoting you to work through an umbrella – is it the PAYE rate (the rate they would pay you if you worked through them) or is it the ‘uplifted’ rate (that is, the PAYE rate plus all the ‘on top’ employment costs the umbrella company will now have). As stated above, It should be the latter (uplifted rate).
  • Make sure your umbrella company is not a disguised remuneration scheme! As explained at the end of our recent article, HMRC probably will not go after the umbrella company for unpaid tax; they will go after you.
  • Make sure you do not get caught up with problematic ‘mini’ umbrella companies. There are obvious impacts to the Exchequer but also to you – as you will never be with any one employer long enough to accrue any rights, and you will have an unusual and fragmented employment record, which could impact on you in many ways.
  • Check how the umbrella company will deal with your holiday pay – if it is not on a ‘rolled up’ basis ask them to confirm the circumstances in which you may lose the holiday pay (for example, if you do not request it before the end of the holiday year). If you leave the umbrella company, ask them to confirm that all outstanding holiday pay will be paid to you with your final payment.
  • Do not get swayed by all the different ‘perks’ that may be advertised. Some of these may be worth very little, for example, same day bank transfers (which are pretty standard these days), or may not be relevant to you (for example, tailored mortgage deals). Some may carry an extra cost over and above the standard ‘margin’.

I work through a limited company: what is my position?

If you supply your services via your own limited company, you may do this, or have been asked to do this (by an agency or umbrella company for example), for many different reasons. But one of the main ones is that it can result in significant tax and National Insurance savings, as compared to being taxed like an ordinary employee, for both you and others in the supply chain that you supply your services in.

The cost savings arise for you because basically, you can receive income from the company as dividends, which are taxed more beneficially then salary. Cost savings arise for others in the supply chain, because if an agency or umbrella pays a limited company rather than a worker, then it is a business to business transaction and they do not have any ‘employer’ costs or responsibilities. There can also be an additional revenue stream created, from the fact that most workers in limited companies will need help from an accountant with running the limited company and so can be charged for this service.

However, setting up a limited (Ltd) company is very different from working through an agency or umbrella or just being an employee or self-employed.

A business which is run as a Ltd company will be owned and operated by the company itself. The company is recognised in law as having an existence which is separate from the person who formed the company and from the directors/shareholders. A company is liable to corporation tax on all ‘profits’. A company must file accounts in a specific format to Companies House and file corporation tax returns to HMRC.

In your personal capacity, you will be a director/shareholder of the Ltd company and also the person that the company hires out to provide services (you would usually set yourself up as an employee of the company to do this). As such, you may be receiving income from the company in the form of a salary and/or dividends (which are taxed at more beneficial rates than salary).

In this situation, the end client that you work for will pay your Ltd company for its services (or will pay the agency/umbrella company who will then pay your Ltd company), usually on production of an invoice (they should not pay you in your personal capacity). The Ltd company will have to run a payroll to process your salary correctly under PAYE and you should probably be completing personal tax returns to declare dividend income and pay any income taxes.

For general information on working through a Ltd company, see our dedicated page.

If you work through an agency or umbrella company and aren’t sure if you are also currently working through a Ltd company, you should double check with the agency or umbrella company. You could also search for your name on the Companies House website.

IR35/Off payroll working rules

If your Ltd company is not supplying goods, but services – your own services, for instance you are a IT contractor, care worker, teacher or labourer then things can get complicated. This is because your company will be a ‘Personal Services Company’ and you will have to consider the impact of the intermediaries legislation (commonly known as IR35 / the off payroll working rules). These rules ensure that individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a Ltd company.

Under IR35, if you would be an employee of the end client you are working for, but for the Ltd company (there is a tool on GOV.UK to help you decide this), then the Ltd company is supposed to tell HMRC and potentially pay them some extra tax. This will usually apply where money has been taken out of the company in the form of dividends – to make up for the fact that they are taxed more beneficially than salary. You can find an overview of the IR35 rules on GOV.UK.

Please note, these rules are particularly complicated and professional advice would be needed if this applies.

Because historically, IR35 has not been complied with or enforced consistently by HMRC, since April 2017, if a person is working through their own Ltd company in the public sector, then they are no longer in charge of determining if IR35 applies. The IR35 determination now falls to the public body and if it applies, PAYE tax and NIC are withheld at source on any payments to the Ltd company (even if the Ltd company is paid by an agency or umbrella company rather than the public body).

You can find more information about working through an intermediary in the public sector on GOV.UK.

The public sector reforms have been extended to the private sector from April 2021 (delayed from April 2020) but they only affect workers in Ltd companies that supply their services to medium and large size businesses (that is, those that meet two or more of the following conditions: annual turnover of more than £10.2 million, a balance sheet total of more than £5.1 million, more than 50 employees).

Those providing their services to ‘small’ clients in the private sector (as well as individuals, for example, homeowners needing an electrician or gardener) will still need to consider whether the old IR35 rules apply to them – these do not just fall away altogether post April 2021. In fact it is foreseeable that the old rules may start being better enforced after April 2021 – so you need to make sure you are clear on whether your client is ‘small’ and if so, what the IR35 rules mean for you.

More detail on off payroll working in the private sector

You can find a factsheet and summary of the new rules on GOV.UK. HMRC’s technical guidance can be found here.

Basically, the new rules in the private sector say that if you look like an employee for the medium or large end client that you work for in the private sector, then you should pay tax like an employee. However, because it is only a ‘deemed’ employment relationship, you will not get any of the employment rights that usually go along with being an employee.

This means that PAYE tax and National Insurance will have to be operated on the amount paid to the company for your services, by whichever entity is responsible for paying your Ltd company (this will probably be the agency or umbrella company). You should then be able to draw out the money from the company as either a salary or dividends without further deductions. You can read more about the requirements on GOV.UK. Further help and support with the changes from April 2021, including things like webinars, is available from HMRC.

The end client that you work for is responsible for deciding whether you look like an employee (as opposed to a genuinely self-employed person), by applying the general ‘status’ tests. They then need to pass the result to the entity responsible for paying your Ltd company so that PAYE can be operated as appropriate. If you are a lower-paid worker, you are not likely to have much autonomy over the work that you do for them, so you will probably be determined to look like an employee.

This is really the key difference between the new rules and the old rules. Under the old IR35 rules, the decision as to whether you look like an employee or not rests with your own Ltd company, whereas under the new rules, the end client makes the decision instead (with ramifications if they get things wrong). This makes it much more likely that the rules will be applied properly and that everyone will then pay the correct amount of tax and National Insurance in accordance with the law.

Indeed, the change from April 2021 is expected to affect how much tax hundreds of thousands of those people pay. As a result, some of those affected may decide to shift away from working through their own Ltd companies. If you work through an agency or umbrella company and have a Ltd company set up, you need to make sure you are clear on what will happen after 6 April 2021, for example, whether you will still be required to work through the Ltd company or not.

Things to note if you stop using a Ltd company after April 2021

If you fall under the new rules, post April 2021 the cost savings you may have received until now will disappear, so working through a Ltd company therefore becomes much less attractive, especially when you consider all the admin and hassle that usually goes with running a Ltd company. (Indeed, there will be so much potential cost and complexity in supply chains involving Ltd companies, that if you are a lower paid worker being asked to work through one post April 2021 – you probably need to ask yourself why.)

Therefore, you may wish to, or be asked to, stop working through your own Ltd company. Your options are then to try and get taken on directly by the end client as an employee, or carry on working ‘flexibly’, via agencies for example, but under PAYE. This will usually mean that you will need to work through an umbrella company, as agencies do not usually operate PAYE on workers’ wages themselves.

If you are asked to work through an umbrella company, please be very wary of the potential problems with umbrella companies we outline above.

If you stop working through your own Ltd company, you also need to take steps to ensure that your old Ltd company will be closed down properly.

If you are paying for accountancy services, arranged perhaps by an entity in the supply chain, you should be aware that they may not be prepared to deal with the winding up of the Ltd company as part of their normal fee. You should also consider whether there will be costs involved in terminating the accountancy services (particularly if you have signed up to pay for a ‘package’ of services on an ongoing basis).

These ‘extra’ costs may be unwelcome but the bottom line is that if you do not make sure that the Ltd company is closed down properly, you could be left with messy Ltd company and corporation tax compliance issues that could follow you around for many years.

Independent, professional advice may ultimately be needed.


This article was originally published on LITRG

Corporate Financial Frictions and Employee Mental Health

A growing amount of literature documents that binding financial constraints during economic distress or financial distress, including impending bankruptcy, can have an adverse effect on firms’ human capital. During economic distress, firms suffering from financial frictions might dismiss short-tenured employees with high future expected productivity due to their relatively low severance pay (Caggese, Cuñat and Metzger, 2019). On the other hand, workers with the highest cognitive and non-cognitive skills might also leave financially distressed firms voluntarily (Baghai, Silva, Thell, and Vig, 2016), while talented job applicants might be reluctant to join (Brown and Matsa, 2016).

In our recent paper entitled ‘Corporate Financial Constraints and Employee Mental Health’, we document a novel cost of financial constraints on firms’ human capital: we provide evidence that financial constraints during an episode of economic distress can have an adverse effect on employee mental health. Deteriorating employee mental health is not only a personal concern of employees but also a concern for firms as mental health is an important determinant of labor productivity. To study the effects of financial constraints on employee mental health, we build a rich dataset based on administrative microdata from the Netherlands that links firm-level financial data to employee-level antidepressant use. Antidepressants are frequently prescribed as a first line of treatment for mental health complaints including major depression disorder and anxiety disorders as well. To identify the causal effects of financial constraints, we exploit variation in firms’ need to refinance their long-term debt in 2008, a period when refinancing became more difficult due to the credit crunch. The Netherlands is an ideal laboratory for this exercise as the country experienced a strong negative bank credit supply shock in 2007-2008, and bank lending is the main source of external financing for Dutch firms.

We find that employees of firms that had to repay a higher share of their long-term debt in 2008—at least 25% of their outstanding long-term debt in our baseline specification—exhibited a 0.44 percentage points higher average probability of antidepressant use in the 2008-2012 period. This is an economically significant 9% increase with respect to the 5% average probability of antidepressant use in our sample.

A possible channel from financial constraints to deteriorating employee mental health is job loss or the threat of job loss. Several studies have documented that the credit crunch associated with the Global Financial Crisis had a negative effect on employment levels. We also find that employees of firms that had to repay a higher share of their long-term debt in 2008 had a 6.2 pp higher probability of job separation in the 2008-2010 period, whereas employees of these firms did not exhibit different turnover prior to the crisis.

While job loss is a potential transmission channel for employees who actually lost their jobs due to the binding financial constraints, the increasing threat of job insecurity could have also had an adverse mental health effect on employees who eventually managed to keep their positions. Arguably it is the mental health burden on this latter group that is of greater concern for employers given employee mental health’s role in labor productivity. We separately study this sub-sample of employees and estimate an average treatment effect on the probability of antidepressant use in the 2008-2012 period of 0.28 pp. This result indicates that much of the 0.44 pp total treatment effect accumulated at employees who managed to keep their job.

Treatment heterogeneity estimates also support the argument that job insecurity is a driver for greater antidepressant use for employees who stayed in their jobs. Based on the relevant economics and psychology literature we identify five personal/household characteristics that are expected to increase the mental health burden of job insecurity: older age, being male, having no partner, having children in the household, and having a salary that constitutes the larger part of the household income. When we interact our treatment indicator with these moderator characteristics, we find statistically significantly larger treatment effects for employees without a partner, those with at least one child in their household, and for employees whose salary constitutes a large share of their total household income. Treatment effects appear to be larger for employees who are at least 45 years old, but the difference is not statistically significant at any conventional level, whereas male and female employees appear to be similarly affected.

Our study contributes to two broad lines of literature. First, a growing literature in finance studies the effects of financial constraints on firms’ human capital. We combine firm-level financial data with rich employee-level data on antidepressant use to document a novel cost of financial constraints, their detrimental effect on employee mental health. We show that the mental health toll of financial constraints is not restricted to dismissed employees but is also substantial for employees who stay with the firm. As argued above, the mental health of employees, particularly of those not dismissed, should be a prime concern of firms due to mental illnesses’ burden on employee productivity.

Second, a large body of literature examines the health effects of financial and economic crises, and among other findings reports a negative correlation between unemployment rates and mental health status. We also study how employment relations contributed to the mental health of employees during a crisis period, but contrary to the previous literature, we use employer-employee matched data to disentangle the mental health effects of the financial crisis (credit supply shock) from the effects of the ensuing economic crisis (the Great Recession). Furthermore, we show that crisis periods may have an adverse mental health effect even on employees who manage to keep their jobs but who may suffer from decreased perceptions of job security.

Dániel Kárpáti is a PhD Student at the Department of Finance, Tilburg University.

Luc Renneboog is a Professor of Corporate Finance, Tilburg University, and a research member of the European Corporate Governance Institute (ECGI).

The original version of this article was first published in Personnel Today By Dániel Kárpáti, and Luc Renneboog

EE Employee Discrimination With Mental Health Condition

EE Employee Discrimination With Mental Health Condition

An EE call centre agent with anxiety, depression and post-traumatic stress disorder (PTSD), who was told to ‘get a grip’ by her manager, was discriminated against because of reasons arising from her disability.

The Cardiff employment tribunal found that a line manager’s comments and behaviour when claimant Bethan Oakley was late returning from a lunch break caused her to become “extremely distressed”, despite his knowledge of her disability.

Oakley began working as a customer services representative at the telecom company’s offices in Merthyr Tydfil, South Wales, in October 2013.

In 2019, Gareth Roberts became Oakley’s line manager. She informed him that she had been attending counselling sessions via EE’s health and wellbeing provider. Her treatment notes confirmed she had been suffering with PTSD following the death of her father, which she had witnessed and to whom had delivered CPR. She regularly had nightmares about her father’s death, often became upset and overwhelmed at small things and cried for no reason.

At the tribunal it was accepted by Roberts that he understood and was aware of her mental health conditions, which amounted to a disability under the Equality Act 2010.

On 27 September 2019, Oakley accompanied a colleague to a sickness review meeting for moral support. The meeting was with Roberts and lasted two hours – an hour over what Oakley had expected. She missed her lunch break as a result.

As the canteen had closed by the time the meeting concluded, Roberts allowed her to take 30 minutes to get lunch off site.

When she returned, she went to her desk with her food. EE’s office had a policy that employees were not allowed to eat at their desks, but Oakley wanted to go through the callbacks and emails she had missed. Roberts told her she wasn’t allowed to eat at her desk and to go to a break out room to finish her lunch.

After no more than five minutes, Roberts entered the break out room to tell Oakley she was late. The claimant alleged he was aggressive towards her and stood over her while she cleared the table. He told her they were very busy and that she was in the break out room not doing her job.

‘Get a grip’

The claimant became upset and began to cry. She said she did not like the way Roberts was speaking to her and that she had already apologised for being late.

At that point, Roberts told her to “get a grip” and to “come on”. He told the tribunal that this latter comment was to reduce the tension in the room and accepted he could see she was upset. The claimant felt his behaviour was humiliating, which Roberts disputed at the tribunal.

Oakley returned to her desk and Roberts continued to argue with her about the fact that she had been late and that eating at desks was not allowed. When he left her desk after Oakley she did not want to speak to him, Oakley began to shake and had difficulty breathing. She told the tribunal this had been a panic attack.

She went into another break out room to calm down and a colleague, along with Roberts, entered. She told Roberts she did not want to speak to him and he said he wanted her back online in five minutes. The claimant said she would not be able to as she was too upset, at which point Roberts said she would have to take sick leave if she could not return to work. She left her shift early.

A few days later, Oakley sent a resignation letter to EE stating, “I was humiliated in front of everyone, being harassed and bullied into experiencing the worse panic attack of my life, something that I have never had happen to me previously in work”.

On 7 October 2019, after having had an email from EE that invited her to discuss the issues raised in her letter, she retracted her resignation and said she may have acted too hastily. She raised a grievance that suggested Roberts had harassed her and had “historical cases of abuse/harassment of other female staff with mental health issues/vulnerabilities in the workplace which have been covered up/neglected”. She also alleged she had been denied first aid care when she had a panic attack, but evidence given in the tribunal hearing suggested that she turned down first aid when it was offered.

Oakley refused to return to work until the issues were addressed and Roberts had received disciplinary action.

EE’s investigation concluded that Roberts’ actions were not discriminatory nor did they amount to harassment.

It partially upheld the claimant’s grievance about the “get a grip” comment and offered an apology.

The claimant resigned after finding a new job in December. In her resignation letter she suggested that the grievance outcome letter was inaccurate and that she was not given a chance to rebut the statements made by Roberts during the investigation.

Tribunal ruling

In the tribunal’s judgment last month, Employment Judge Havard said: “[The tribunal is] satisfied that the respondent treated the claimant unfavourably as a result of the way in which Mr Roberts spoke to, and behaved towards, the claimant. Such conduct not only caused the claimant to exhibit symptoms of distress/panic attack which led to her being unable to continue to work on the afternoon of 27 September 2019 but he continued to talk to her in an unacceptable way during the time that the claimant was exhibiting symptoms of distress.

“The tribunal also considered that the respondent treated the claimant unfavourably by Mr Roberts expecting the claimant to resume work in circumstances where she had demonstrated, and continued to demonstrate, symptoms of distress and panic attack and an inability to work.”

It agreed that the way she had acted arose as a consequence of her disability, which EE and Roberts had been aware of.

“It must have been evident to him that the claimant was a vulnerable individual. However, it was significant that, whilst he admitted that he knew the claimant was disabled, Mr Roberts stated that he would treat every employee under his leadership in exactly the same way,” the judgment added.

The tribunal upheld Oakley’s claim of constructive dismissal, wrongful dismissal, disability discrimination and disability-related harassment. Claims of sex harassment and victimisation were dismissed.

Compensation will be determined at a later hearing.

EE told Personnel Today it did not have a written statement in response to the tribunal’s findings.

The original version of this article was first published in Personnel Today By Ashleigh Webber

Don’t Confuse Flexible Working With Remote Working

At the end of January a People in Law conference heard from Iain Harrison, a senior manager at EY about the difficulties and potential rewards of establishing a new hybrid working model once the pandemic has receded. Adam McCulloch listened in.

Businesses must not confuse flexible working with remote working – they are two different things. UK workplaces have been faced with a revolution, not evolution, over the past year as a result of the pandemic, Iain Harrison, people consulting, EY, told the People in Law conference at the end of last month.

Harrison also said that few people “realised how important HR was until the pandemic”.

He said that people were mistaken when they talked about there being a great experiment in flexible working during the pandemic. It’s actually an experiment in remote working, he told People in Law delegates, with some employers increasing digitisation exponentially and claiming that they would never return to the old workplace-centred way of doing things. But was this something of a sticking plaster approach that didn’t recognise the importance of continuous human interaction, Harrison asked

“Are clients going to want remote meetings? Will we return to a real desire for in-person contact and what does this mean for our structures?” Harrison said.

Harrison suggested that remote working was no more flexible than having to go into the office. “We all have stories of colleagues who have not fully embraced remote working. Confirmation bias … oh we can do everything remotely … but it doesn’t mean that things should be done remotely. The thought process hasn’t evolved fully enough to make the right choices,” said Harrison.

He said that companies had made missteps during the pandemic, implying that permanently changing the working model did not address the question of whether the model fitted how firms worked with their clients.

There was also the question of how remote working had disadvantaged some groups of workers. “We’ve seen a disproportionate impact on women in the pandemic. It’s taking women backwards. So the new [hybrid] models [of working] are an opportunity to make up for that,” said Harrison.

Empty buildings

He went on to question how the office would lose value as part of a business’s branding if managers were to invite clients to largely empty buildings. Harrison saw offices as being linked to social activities – a shift from our traditional view of them as places just for work. He said the view would become more one of “Work is something I do in different places… the office does not exist as the main place of work.”

One of the most important functions for offices, he said, was how they provided a venue for random meetings with colleagues; one of the benefits was that employees were in proximity to more experienced colleagues and could “earwig” conversations. “So flexibility reduces the chances of these important interactions,” said Harrison.

“Putting together a hybrid model can’t be done by accident,” said Harrison, citing research by Cushman and Wakefield, whose study showed how the random meetings and encounters that “give wonderful insights on taking your work forward” would be impacted by more flexible working. The research showed that the chances of a team coming together reduced exponentially depending on how many days a week people were at home. If team members worked at home three days a week, the chances of meeting a colleague dropped to 12%.

This told us, said Harrison, that “you can’t choose to work at home whenever you want… there must be some form of design”. The fact that, for example, junior lawyers learned a lot by “osmosis” was highly pertinent here, yet there were employees who had joined professional services firms nearly a year ago who had never met any colleagues.

Decisions needed to be made on who needed to work together and leadership must develop real time for engaging with people and ensure it had the capacity to do this. HR could help with this but it had to be led “within the line”… and had to be supported by rostering, facilities and real estate to ensure there’s space for teams.

Presenteeism

Harrison said many employers and employees feared that “return-to-office presenteeism” could develop very quickly where people wanted to be in the office, where the “seat of power” was. This had been seen at some government departments where people had needed to head in to the office and presenteeism crept back in. “Thankfully some of the leaders said I’m not going back in and I’ll continue to work remotely but inclusively. That role modelling is so important from leaders.

“The culture and behaviours are different levers that need to be in place to support this new way of working. We’ve seen a lot more organisations needing to focus on culture as a forethought not an afterthought.”

One of the biggest risks, said Harrison, was around collaboration and relationships. As people come into the organisation how do people feel they’ve joined an organisation – what differentiates one business from another? “Onboarding is a real challenge and one of the hardest challenges of a new hybrid model.”

“We’ve had to work doubly hard to make sure people gain that shared knowledge and shared experience,” he said.

There was a risk that the benefits of the hybrid model would not be felt because leaders would just decide it was too difficult to achieve, agreed Harrison in response to a question. But this was why really understanding the drivers behind hybrid working was vital – “we need to get the hard metrics and put them in the dashboard”.

Shared experience

He saw the past 12 months as a shared experience, one that had affected clients, supply chains, leaders equally. “We now all have an experience of remote working. We are seeing greater acceptance of individual red lines… many people might now feel they can meet remotely because of a family issue, client expectations have changed because the clients themselves have had to lead a different kind of working life. We have to be a lot more bold in expressing our needs.”

HR must facilitate the conversation about where certain tasks must take place, with the ability of people to move around roles becoming important.

The new hybrid style of work “will require trust” concluded Harrison, at the People in Law conference. “Team leaders must be trusting about workers. Output must be focused on. Guardrails and guidance … a more adult to adult relationship in the employment contract as opposed the adult-child-type relationship we used to have.”

The original version of this article was first published in Personnel Today by Adam McCulloch

Employment law updates – Coronavirus

Employment law updates: Coronavirus

Coronavirus Job Retention Scheme (CJRS) updates

Employment law updates – Coronavirus Redundancy payments:

  • The government announced on 30 July that workers who were furloughed will be entitled to a statutory redundancy payment based on their pre-furlough salary and not the reduced furlough salary. This was implemented by the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 which came into force on the 31st July.
  • Employees with more than 2 years of continuous service who have been made redundant are entitled to a redundancy payment up to a statutory maximum (which remains the same). This is based on age, length of service and salary.
  • The changes will also apply to Statutory Notice Pay and awards for unfair dismissal.

Furloughed workers:

  • Employers have been able to bring furloughed workers back to the office for any amount of time and for any kind of shift pattern since 1 July while still being able to claim the CJRS grant.
  • From 1 August the Government has advised that employers and employees should be able to exercise discretion as to whether they can work safely from the office.
  • The furlough scheme will end on 31 October 2020.

https://www.gov.uk/government/news/new-law-to-ensure-furloughed-employees-receive-full-redundancy-payments

https://www.gov.uk/government/publications/changes-to-the-coronavirus-job-retention-scheme/changes-to-the-coronavirus-job-retention-scheme

https://www.gov.uk/government/speeches/pm-statement-on-coronavirus-17-july-2020

For employment law advice please contact Rupert Farr: Rupert.Farr@blaketurner.com or 020 7480 6655.

Coronavirus: Employment law update

Coronavirus employment law update:

Blake Turner LLP is currently assisting and advising numerous clients navigating the impacts of coronavirus on employment related matters. Please contact Rupert Farr for more information at Rupert.farr@blaketurner.com or on 07799 065638.

The impact of the coronavirus (COVID-19) pandemic on businesses across the UK has been critical. Businesses across a wide range of sectors have been forced to let go of staff or have incurred significant costs due to staff absence. Measures were announced in the Chancellor’s most recent Budget to mitigate the impact including; Statutory Sick Pay (SSP) relief for SMEs, tax breaks, government-backed loans and an HMRC helpline. However, there are fewer protections for staff in place and freelancers may find themselves without work for an indeterminate period. As the situation progresses, it is likely that many more staff will have to be let go, and it is important that both employers and employees are aware of their rights and obligations. A statement was recently released by the Government strongly encouraging all workers who are able to work from home to do so. However, is not yet clear whether businesses will be forced to shut down to stop the virus from rapidly spreading. Many workers will not be able to work from home; particularly those in sectors such as retail, manufacturing and hospitality.

Employers should keep abreast of Government updates on COVID-19, and advise customers and employees on how they plan to deal with the impacts of the virus. Ideally there should be a point of contact for COVID-19 matters. Employers should also ensure that remote working arrangements do not result in weaker protections for client data or confidentiality. They should monitor employees who may have contracted COVID-19 and implement measures to minimise the risk of the virus spreading, for example, by reducing travel to the bare minimum. Particular attention should be given to those employees with disabilities and underlying health conditions and they may want to consider making alternative arrangements for those who are high-risk. Businesses should also check with insurance providers whether they are covered; this is unlikely to be the case for the majority.

Employees who have symptoms, or live with people who have, should check the most up to date UK Government and NHS advice online. SSP will be available from day one instead of day 4 and for those who have been let go, Universal Credit and Employment and Support Allowance is available.

Government advice and resources available to employers, employees and businesses:
https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19

Blake Turner LLP is currently assisting and advising numerous clients navigating the impacts of coronavirus on employment related matters.

Please contact Rupert Farr for more information at: Rupert.farr@blaketurner.com or on 07799 065638.

For more information about business support relating to the Coronavirus Job Retention Scheme click here.

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Employer pension contributions

Employer pension contributions count towards a week’s pay

Facts

In the Employment Appeal Tribunal (“EAT”) and in the matter of University of Sunderland (“University”) v Ms K Drossou, the University of Sunderland appealed against the finding that employer pension contributions are to be considered when calculating the claimant’s weekly pay.

Ms Drossou worked for the University and was dismissed as a result of an irretrievable breakdown in working relationships. Ms Drossou was considered to be the primary cause of the breakdown.  The employment tribunal found that she had been unfairly dismissed and ordered the University to reinstate her. The University did not comply with the order and the tribunal awarded compensation instead. The EAT departed from the usual practice of excluding pension payments in calculating the weekly wage on the basis that section 221(2) of the RTA 1996 does not state that the amount payable by the employer under the contract of employment has to be payable to the employee and remuneration in section 221(2) means a reward in return for services and pension contributions are no less a reward for service than basic pay. The University appealed this finding.

Decision

The appeal was dismissed. The EAT agreed with the tribunal with respect to the above reasons. The EAT drew the distinction between section 221(2) and section 27(1) of the RTA 1996. The latter specifies that the sums must be payable to the worker whereas those words are absent in section 221(2).

Comments

Pension payments have not been taken into consideration when calculating a claimant’s weekly wage on the basis that the payment is not received directly by the employee but paid into a pension fund. This decision has increased the potential value of a claimant’s weekly pay. This decision will be important for employers who pay a high employer contribution rate. It is yet to be seen whether there will be further litigation following this decision or whether the correctness of the EAT’s judgment will be challenged.

 

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

 

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com.

 

Statutory adjudication to the construction industry

The Housing Grants, Construction and Regeneration Act 1996

The Housing Grants, Construction and Regeneration Act 1996 introduced statutory adjudication to the construction industry in addition to contractual adjudication which already featured in a number of standard form contracts.

Statutory adjudication provides for a 28 days fast track dispute resolution procedure.

In the almost 20 years since adjudication has been available through this piece of legislation, Lewis Cohen has represented a number of claimants and respondents in the process dealing with a number of issues including final account disputes, claims for delay and disruption and claims for defective workmanship and negligent design.

Not only does Lewis have a breadth of knowledge from his experience in this field but he recently studied for two years on the RICS Diploma course and is now a qualified adjudicator.

Adjudication, by its nature, remains a private dispute resolution procedure unless the decision is taken to court for enforcement.

Lewis has experience in successfully enforcing adjudicator’s decisions in the Technology & Construction Court.

Given the fast track nature of adjudication, this requires a flexible response when defending claims and Lewis and his team are able to offer immediate advice and a rapid response when acting for both the claimant and the respondent.

 

Sexual and racial discrimination case

Sexual and racial discrimination case

Blake Turner Solicitors recently acted in a discrimination case for an employer who faced a claim of sexual and racial discrimination for an employee who had worked there for less than six weeks.

Despite obtaining a Deposit Order against the Claimant at an early stage in the proceedings (on the basis that the Claimant had low prospects of success), the Claimant decided to pursue the matter all the way to the full Tribunal hearing.

After one aborted hearing in August, the employer was successful in defeating all heads of the claim.  As the judgment was based on the same findings as the Deposit Order, the Claimant was deemed to have behaved unreasonably in continuing with the proceedings.

As a result we made an application on behalf of our client for a Costs Order against the Claimant.  Costs Orders in Tribunal proceedings are extremely rare and are very much the exception to the rule.  Indeed they are only obtained in 0.07% of cases.  We were successful in obtaining the Order after a day’s hearing before the same Tribunal which heard the case.

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com

Prison for employee for deleting evidence

Former employee sent to prison for deleting evidence in breach of court order

Facts
In OCS Group UK Ltd (“OCS”) v Dadi and others, a former employee of the claimant was committed to prison for six weeks for breaching an injunction to preserve evidence pending trial of an action against Dadi for breach of confidence.

Mr Dadi had worked for OCS. OSC lost a contract to one of its competitors – OmniServ. Mr Dadi was transferred to OmniServ under TUPE. Before the TUPE transfer, OCS brought a claim against Mr Dadi on the basis that Mr Dadi had conspired with one of the other defendants, Mr Ahitan, by emailing confidential information belonging to OCS to his personal email account over a period of time. Mr Ahitan worked for OmniServ but previously worked for OCS as Mr Dadi’s manager.

OCS obtained an injunction against Mr Dadi which prohibited him from disclosing or making use of any of OCS’s confidential information, required him to provide information to the court about what discourse he had made of that information, required him to preserve hard copy and electronic documents, and, prohibited him from disclosing to anyone else (except his legal representatives) the existence of the order or the possibility of proceedings being commenced.

The standard notice on the front page explained that breach of the order would be a contempt of court which could result in imprisonment.

OCS’s lawyer personally served the order and read out the notice. Immediately following this, Mr Dadi telephoned Mr Ahitan and informed him of the injunction. He also deleted several emails from his personal email account. The following day, Mr Dadi deleted a further 8,000 emails and told various family members about the injunction.

OCS applied for Mr Dadi to be committed to prison for contempt of court.

Decision
Mr Dadi was sentenced to six weeks in prison for contempt. The court emphasised their strong disapproval of his conduct and imposed the prison sentence also to act as a deterrent. The court took into account that the acts were “deliberate and contumacious breaches”.

The breaches had significantly prejudiced OCS and cost them considerably in forensic examination to salvage information that should have been left untouched.

Comments
It is not unusual to see a sentence such as this for breach of an injunction but it is not often these powers are being used in an employment context. This case highlights the importance of complying strictly with injunctions aimed at preserving evidence. The court will have little sympathy with pleas of naïveté especially if an employee goes to great lengths to cover their tracks. The notice on the front of the order is there for a reason.

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com.