April 30, 2019
Should you pay your contractors holiday pay?
Should your organisation foot the bill for your contractors holiday pay?
The Chancellor might disagree.
You may have heard the recent decision by HMRC to roll-out the new ‘off payroll’ IR35 rules in the private sector during April 2020.
The new rules place the emphasis on the end-user to determine the IR35 status (and therefore the likely net income) of the contractor. This will require significantly increased administration by those organisations who utilise contractors as they grapple with interpreting and then applying the new rules. It will also open up organisations to potentially significant levels of risk as new case law crystallises how the new rules are implemented.
The off-payroll IR35 rules were implemented in April 2017 in the public sector with some rather undesirable effects.
Unpredictable day rates
Firstly, marketed pay rates alter dramatically according to the IR35 status as it directly impacts net take-home pay.
I have seen first-hand requirements coming via the main government buying framework (CL1 at the time) for contingent labour being drastically different. A Business Analyst, deemed ‘outside’ IR35 attracting a rate of £450 per day. The same role deemed ‘inside’ with a rate of £600 per day. Some difference for essentially the same skills.
Employee benefits for contractors
The more interesting (and scary) prospect is should organisations deem workers to be ‘in’ IR35, then they may find themselves on the hook for other ‘employee-style’ benefits, e.g., holiday pay.
In a recent case, a contractor working on-site at HMRC successfully claimed over £4,000 in holiday pay after the HMRC sanctioned tool ‘CEST’ (Check Employment Status for Tax) deemed her inside.