Clients alerted to contractors' holiday claims

Ensuring the self-employed contractors that they engage cannot be classified as 'workers' has moved to the top of client companies' HR agendas following a landmark ruling.



In HMRC V Stringer, the House of Lords said that if such workers do not get holiday pay they can later potentially claim it for the entirety of their engagement, not just a year's worth.



As a result, the Working Time Regulations, which require employees to use all holiday leave within the current year or forego it, are no longer in effect, said accountants at Danbro.



The ruling potentially leaves outfits exposed to back-dated claims for several thousands of pounds – particularly since the annual holiday entitlement has risen to 28 days, the firm said.



Holiday pay claims, which the worker can make if their employment ends, are now not just a nuisance but also are potentially a "financial disaster," according to experts at Accountax.



But both the advisers hinted only a small number of individuals would likely be eligible for hefty payouts for holidays, as genuine contractors and freelancers are not entitled to holiday pay.



Still, anyone who has not been operating through an umbrella or limited company is within the definition of a 'worker', which could make them entitled to holiday pay, and other benefits.



In other words, individuals able to claim would first need to have 'gone direct' as a sole trader or would need to have been working at the end-user via a recruiter operating PAYE payroll.



Yet despite what is then only a small window for long-term holiday claims, outfits are being advised to minimise their risk to the liability, particular as the wider financial pressures remain.



"Now more than ever, any company employing self-employed contractors needs to ensure that they cannot be classified as workers," said Danbro's Gerry Gregoire.



The firm explained: "In these times of uncertainty where businesses are trying to focus their efforts on surviving one of the most deep rooted recessions on record, they will find that by effectively managing their payroll, they can remove the risk of their self-employed contractors being deemed as workers.



"This effectively would prevent them, from being able to take further accrued annual leave after long periods of sickness among other employee benefits."



The Lords' decision has "massive financial ramifications" for those who engage self-employed contractors, Accountax warned end-users, adding "the liability for you has just got apocalyptically bigger."