Contracting for a client who’s still banning limited company, off-payroll workers: 2)Unfairness
As if things weren’t bad enough in the eyes of contractors at the bank we’ve put under the microscope for this ContractorUK series, there is also a ban on contractors who despite being deemed ‘employees’ for tax purposes, are barred from an ‘Employees' Assistance Service,’ writes Carla Roberts, legal director of WTT Legal.
Here’s a snippet we received from a concerned party, in relation to the service, which is essentially an internal counselling resource for those of the bank’s staff who find themselves in distress or difficulty.
“This is an all-year round service introduced before covid-19 but nonetheless, many contractors here at the bank are depressed, suicidal, in severe financial difficulty, unwell and fearing for their livelihoods as a direct result of the pandemic -- and the bank’s unfair IR35/tax policy.
“Is there legal recourse for these contractors -- unfairly deemed employees but barred from employee services? It’s obviously unfair to deprive them of a wellbeing resource. We might only be ‘contingent’ workers, but surely the bank has a ‘duty of care’ towards contractors?"
This snippet demonstrates how easy it is to confuse the relationship between a contractor and an end-client. In truth, not all contractors are ‘deemed employees.’ It is accurate to say, however, that some contractors are deemed -- for tax purposes -- to be taxed as though they are employees, but still, there is no ‘employment’ relationship between the parties.
Such contractors are considered working ‘inside IR35.’ As such, an end-client has no legal obligation to offer any of the benefits of full-time employment to contractors working inside IR35, other than:
- parity of pay after a qualifying period
- access to collective facilities provided under the Agency Workers Regulations ('AWR').
Furthermore, all contractors, whether working inside or outside IR35 are unlikely to have any recourse if comparable benefits are denied. In fact, any argument that a contractor working outside IR35 is entitled to such benefits, would be foolish and risky from an IR35 perspective. The position isn’t as straightforward for contractors working inside IR35 -- clearly, they have neither the tax benefits, nor the employment rights – so possibly the most unfairness of all, as for them, it’s the worst of both worlds.
Before the IR35 reforms were mooted, the government commissioned the Taylor Review of Modern Working Practices (subsequently outlined for implementation as the “Good Work Plan”). This review looked at nearly all aspects of working as an employee or a contractor and made a series of recommendations, partly to achieve fairness. One of these was that a common definition between tax and employment law should be formed, stating who was an employee and who was not.
Parity is still a long way off
But this recommendation was explicitly rejected by the government which indicated that they wished to keep the distinction. Clearly, the IR35 rules are treating more and more contractors as being inside IR35, yet this does not strengthen the legal employer-employee relationship (although it is important to note here -- if an inside IR35 contractor is working through an umbrella company -- i.e. a person working on a contract which has been assessed as IR35-caught but who executes it via a brolly, he/she will have certain statutory employment benefits provided by the umbrella).
Recently, it has been suggested that an employment tribunal would view with some favour a claim that an individual was an “employee,” if their tax status was set as such. Those cases all have some form of special circumstance involved and while there may be drift in the tribunals to finding a common definition or set of circumstances, that fair-sounding outcome is still a long way from proving that employee benefits can (or should) be available to non-employees of the end-client.
With respect to counselling in particular, a contractor who is self-employed as a sole trader may well be able to claim some expenses for counselling. This is debatable, however, as HMRC would probably argue that the cost has a ‘duality of purpose,’ i.e. a personal as well as a business component. A contractor operating via a PSC on an outside IR35 basis might have a slightly better chance.
However, a contractor working inside IR35 via an umbrella (i.e. a contractor whose role was deemed inside IR35 and so who is working through an umbrella), would almost certainly not be able to claim the cost of counselling, as this would likely be deemed an ‘occupational benefit’ not allowed under AWR. Whether he/she would be entitled to this benefit under the contract with their umbrella company would depend on the employment contract between the parties.
Beware biting the hand that...
Finally, a contactor taking legal action in the pursuit of perceived fairness, and specifically a legal action against an end-client, risks souring that commercial relationship for good. Presently, the commercial power and force is with the end-client. In this current economic climate, many contractors are prepared to accept less favourable terms in order to secure an assignment. If the contractor then bites the hand feeding them, they would need to be very sure that they are irreplaceable. Or they ought to do so only on the expectation of never working with that end-client again.
There is no doubt that the present climate has made things difficult for many, particularly for contractors. During this ongoing pandemic, there is limited governmental support on offer and end-clients are also struggling.
Those contractors working for an end-client through an umbrella company may have recourse to support services such as counselling, but unfortunately those working through their own PSC will not have access to any such assistance programmes. The end-client may owe them a ‘duty of care’ with respect to a safe workplace, as our concerned party identifies, but sadly, and unfairly perhaps in the eyes of PSCs, no such duty of care exists with respect to contractors working on a business-to-business basis.