Recently, a case regarding the company Pimlico Plumbers has re-ignited the debate over self-employment within the construction industry.
Specifically, plumber Gary Smith was engaged as an “independent contractor” for the company. However, the court ruled that in reality, Gary was a “worker” and therefore, he was entitled to the holiday pay and workers’ rights that he didn’t receive.
Gary did have some flexibility regarding his working hours, and was treated as a self-employed individual for his VAT and tax affairs. However, an employment tribunal found that, due to the agreement he made with Pimlico Plumbers, he was a worker. (What is a worker?)
Within this agreement, it was laid out that Gary would have to wear a uniform and drive a company branded van. Not only that, but he also had to work a five day week with a minimum of 40 hours. Any annual leave or time off would also have to be run through the company.
Overall, there were restrictions regarding the plumber’s ability to work within a competitive situation. Therefore, it was ruled that he was not fully supplying his services as an independent business service.
But how do you know if your self-employed workers are actually your employees? Well, we asked Nick Pilgrim, the Managing Director at EEBS Limited who are leading payroll specialists for the Construction Industry. He decided to take a look at a few popular urban myths concerning the employment status of individuals within the industry and how to prevent cases such as Pimlico Plumbers vs Gary Smith.
Whilst talking to delegates at a number of National Trade Shows, he found that it was clear that there was a massive gap in understanding regarding genuine self-employment. Most people don’t even know that there are two separate strands of employment law – one for tax, with a different court taking responsibility for employment rights!
He identified that during the trade shows, the four most common statements were:
1. “All my lads are registered with the CIS, so they are automatically self-employed.”
2. “I get a weekly invoice from my lads (although we actually knock it up in the office for them) – so I am fully protected.”
3. “All my lads have limited companies.”
4. “I only use self-employed lads for 3 months at a time (or 13 weeks/a few weeks/a few months/six months etc – you get the drift) so that’s too short a time for them to be employed.”
However, according to Nick, only the third statement would have actually stood a chance at winning an argument with both HMRC and the Employment tribunal in the Pimlico case!
So, how does the Revenue decide if tradesmen should be employees?
Well, according to Nick, the HMRC tends to look at how you work with sub-contractors. He revealed that if:
1. You use self-employed tradesmen without a written contract.
2. Supply the majority of the materials, plant and equipment.
3. Pay them an hourly/daily/weekly rate.
4. The sub-contractor cannot demonstrate that he can make a loss as well as a profit.
5. The sub-contractor cannot demonstrate that he has an active portfolio of other clients.
Then the HMRC are extremely likely to find that these tradesmen are your employees.
But is there an alternative to making these individuals you employees?
Nick revealed that yes, there is an alternative! In spite of HMRC’s ongoing attempts to
limit the employment arrangements options for contractors, it is still entirely possible to guarantee your sub-contractors self-employed status via specialist intermediary suppliers.
But is this safe?
As in any industry, Nick stated that not all solution providers are equal. But yes, it is safe to outsource the supply of your sub-contractors. This is provided you take advice from a reputable, audited and compliant supplier. Ideally, this supplier would have never had their model challenged by HMRC. Not only that, but ideally they should also be audited by the Aspire Partnership (the UK’s leading Construction Tax Specialists). And their compliance should be backed by a comprehensive guarantee!
So there you have it! To find out if you’re at risk, click here to take the online compliance test!
Does this help? Let us know what you think in the comments below.