When Are Your Independent Contractors Entitled to Backdated Holiday Pay?

Well, when they are able to argue that they are not, in fact, independent contractors and rather are ‘workers’ who are, thus, entitled to paid annual leave.

What happened in this case?

Mr Smith was a heating and plumbing engineer for Pimlico between 2005 to 2011.

During that time, he was treated as ‘self-employed’ and was not paid any holiday pay when he took breaks from working.

Mr Smith was not happy with this situation and lodged claims for unpaid leave and compensation on the basis that he was a worker and not self-employed and therefore that he was due paid leave.

Workers are entitled to holiday pay, the self-employed are not

In basic terms, for that self-employed status to stand (preventing holiday pay from being due, Pimlico would have to succeed in arguing that their arrangement satisfied the legal tests for being self-employed.

To do this, they needed to show (among other factors) that Mr Smith:

• used his own tools and equipment;
• incurred expenses and insurance costs;
• carried risks on the jobs he did;
• was free to work for others;
• managed his own hours and time; and
• didn’t have to undertake the work personally.

In this case, Mr Smith argued that he was actually a ‘worker’ and he won, meaning he could then argue that holiday pay was due. This meant that because he had never been paid for annual leave taken in the past (as he was treated erroneously as self-employed) he was then due compensation in the form of backdated holiday pay

Prevented from taking paid holiday: no limit on backdated claims

Not only did Mr Smith argue non-payment of holiday, he also argued that he was actively prevented from taking paid holiday which is a potentially very expensive claim for the employer. Bear in mind that if it is upheld that an employer has, shall we say, actively prevented a worker from taking paid annual leave, it is then possible in such cases for the worker to claim all their years of accrued unpaid leave without limitation, in this case that’s c. 5-6 years’ worth; and of course, that could affect others on the same self-employed arrangements.

Free audit of self-employed terms – you can reduce these risks

Remember, if your business has ‘self-employed’ consultants, then what your contract terms say and how you manage them is crucial to avoid such claims for holiday pay like Mr Smith’s.

As in all cases, and as demonstrated in Mr Smith’s case, the Tribunal will examine the contract and the actual day to day arrangements – what is happening “on the ground” - to establish worker or self-employed status and, frankly, employers often get this wrong, as did Pimlico. As well as the holiday pay issues arising, such cases open up PAYE / tax problems too.

 Call the team for a free guidance call on: 01904 360 295 or email us on enquiries@bridgeehr.co.uk

Book a free contract audit to ensure legal compliance:

There have been a number of legal changes relating to holiday pay, pandemic rules and guidance and equality law too. Contact the team for a free audit to ensure your documentation is lawful and compliant.