· Comment

HR must heed the warnings of IR35 tribunals

Mote Cricket Club is now listed alongside Uber and Pimlico Plumbers as an organisation hauled through the tribunals by individuals asserting that they were employees or workers, not contractors.

Happily, in February the employment appeal tribunal (EAT) found that Mote’s ex-groundsman was genuinely self-employed, so he was not entitled to any of the holiday pay or other benefits attached to workers. 

Other companies are less fortunate. Whether your contractor is, in fact, an employee or a worker is an issue with significant implications for employment law and tax liabilities, and it is not going away.

What HR needs to know about IR35:

The UK needs a legal definition of self-employment

Key steps for HR as dust settles post off-payroll

IR35: off-payroll one year on

I have seen several organisations with contractors held out on their websites as being part and parcel of the business, with job titles and even reporting lines set out for the public.

Based on these factors, the contractors concerned, and in some cases the taxman, have challenged their self-employed status. 

Employment status comes down to fact. If an individual, held out as a contractor, performs personal service for your organisation; is integrated into your organisation to the extent they have a job title, and is shown as being part of your organisation (like on your website or on business cards) then there is a very good chance that you could end up with an unexpected tribunal claim, or a letter from HMRC.

The risks are real. Even if a contractor is not found to be a fully-fledged employee, but rather holds the hybrid status of worker, then they will be entitled to holiday pay and minimum wage. 

HMRC takes great store in what it describes as its part and parcel test: if your contractor is embedded into the organisation then it is very likely it will regard this arrangement as disguised employment, whatever the contract says, with all the income tax and NI liabilities that follow for the end user.

We recommend that all businesses using contractors regularly audit their arrangements in order to make sure that they are not inadvertently running the risk of having individuals’ employment status questioned. 

Many organisations have long-standing contracting arrangements with people, pre-dating the IR35 changes last year, which led to significant usage of HMRC’s online status tool for new hires.

Often there are individuals (commonly in IT) who have been working at the same desk for years, quietly submitting their contracting invoices at the end of the month, but who may end up being alleged workers or employees. 

It is as well to look out for these arrangements lest your business shares the tribunal experience of Uber, Pimlico Plumbers…and Mote Cricket Club.

Martin Pratt is a partner at Ince, specialising in employment law, issues at work and employer's issues