Businesses using external freelancers and consultants might be exposed to unexpected risk after a recent employment tribunal ruling considered one such individual was entitled to the same rights or protections as workers.
The ruling, which related to an independent social worker, placed on assignment with the Home Office by a recruitment agency found that she was considered a worker under the Employment Rights Act 1996 (ERA) after she raised the claim that deductions from her pay were unlawful.
The claimant, Ms Appiah, had been working through a personal service company (PSC), a limited company that a self-employed person uses to provide services to clients. Having been placed by Tripod Partners Ltd, the Home Office assessed her situation using HMRC's Check Employment Status for Tax (CEST) tool, which concluded she was inside the off-payroll working rules (also known as IR35) and should be taxed as an employee.
Tripod then offered Ms Appiah two options: to contract via PAYE or through a service company. She chose the latter, and Tripod explained that it would deduct income tax and employee national insurance contributions (NICs) from her pay, which she accepted.
However, Tripod also deducted employer NICs from her pay, and Ms Appiah brought a claim stating these deductions were unlawful under the ERA. Tripod argued that Ms Appiah was not a worker and therefore could not make such a claim.
The tribunal found that although the contract was between two limited companies, this did not exclude Ms Appiah from the protections of the ERA 1996. The tribunal concluded that she was a worker because she submitted timesheets, worked full-time, and performed the services personally. The different payment arrangements offered by Tripod were merely ways of channelling her pay, not indicative of a genuine business-to-business relationship.
As a result, the tribunal upheld Ms Appiah’s claim for unlawful deductions of employer NICs, confirming that she was entitled to the worker protections under the ERA and awarded her £36,817.65 the total of the employer NICs deducted.
Kerrie Hunt, Thrings’ Head of Employment, said “Though fact sensitive, this is an interesting decision that has the potential for wider repercussions as it will equally apply for businesses that engage directly with individuals via their PSC and are the deemed employer for off-payroll purposes.
“If so, and worker status can be established, then further protections for workers under the ERA and other legislation may also apply. Businesses who mostly regard individuals with PSCs as independent consultants or contractors may need to adapt their thinking.”
Thrings’ Employment lawyers are experienced in dealing with business matters that affect the workforce and has acted for both employers and employees from start-ups and SMEs all the way to multinational corporations across a wide range of employment matters. To find out how they can help strengthen your polices, and solve your disputes, please get in contact.