Check if staff are really self-employed, warns Old Mill

Farmers and rural employers should check whether their staff are really self-employed in the eyes of the law following a legal challenge by a disgruntled worker.

The latest court case to raise the question of whether staff are employed or not is King v The Sash Window Workshop Ltd. Mr King worked full-time as a self-employed salesman for The Sash Window Workshop on commission only for 13 years. He was offered an employment contract in 2008, which would have included paid annual leave, but he chose to remain self-employed, continuing to take varying amounts of unpaid leave.

When the firm terminated his contract Mr King claimed he was actually employed and sought backdated holiday pay and pay in lieu of untaken holiday leave, explains Andrew Vickery, head of rural services at accountant Old Mill. He was successful in his claim under the Employment Tribunal, and the case has now reached the Court of Appeal.

“In recent years HM Revenue & Customs has tightened up the classification of self-employed workers, and in reality many farm staff should be classed as employed,” warns Mr Vickery. “Just because people claim to be self-employed doesn’t necessarily mean that they are in the eyes of the law.”

The Court of Appeal has referred a number of points to the European Court of Justice (ECJ), including how long accrued leave can be carried over. “The court is yet to decide on the matter, but there are likely to be many farm and rural workers who may be affected by the ruling.”

So what are the potential implications? Anyone whose staff are not given paid leave are likely to be due back pay – how far back is yet to be clarified. And workers who have not taken all their holiday due to long-term sickness or other reasons beyond their control should be able to carry that holiday over, rather than losing it at the end of each year. “If the ECJ agrees with the Advocate General, there could be considerable administrative and financial repercussions for rural businesses,” explains Mr Vickery.

He advises anyone with staff to review their contractual terms, and reassess whether apparently self-employed workers should be classed as employees. “Where an individual has to perform work personally, has no control over which tasks to perform and works a set number of hours for regular pay, they are likely to be employed. Someone who can send a substitute in their place, can decide when and where to work and what tasks to perform, and generally agrees a fixed price for their work – and hence is open to making a loss as well as a profit – is likely to be self-employed.”

The main difference from an employer’s perspective is the need to pay Class One National Insurance – equivalent to around £4,500 a year for a worker on a £30,000 salary,” says Mr Vickery. Employees also get rights like statutory sick pay, pension, maternity and paternity entitlements and protection against unfair dismissal.

“If HMRC decides someone has actually been employed, rather than self-employed, they can reclaim any lost NI duty from the employer, together with additional interest and penalties,” he adds. “The costs of getting it wrong can soon stack up – particularly if a worker sues for unfair dismissal. It is therefore imperative that employers verify the employment status of all their workers at the earliest possible opportunity.”