The slow onward process of the law continues to work in contractors’ favour, with another recent ruling making it more likely that clients will be as keen as the contractors they take on to ensure that limited company contractors are clearly working outside IR35.
This follows the House of Lords ruling on the Stringer v HM Revenue & Customs case. This has confirmed that, under very specific circumstances, contractors may be able to claim significant sums of backdated holiday pay, going back many years. Previously, the time limit was one year.
Following hard on the heels of the Tilson ruling, this ruling is very good news for contractors. And not because it allows a narrow band of contractors (‘permtractors’, in truth) the right to take their clients to an Employment Tribunal to claim potentially years of unpaid holiday pay.
No, it’s good news because clients now have another good reason to make absolutely clear to the world at large, and to HMRC and Employment Tribunals specifically, that their contractors are just that – contractors working outside IR35 and not disguised employees.
So, it seems certain that prudent clients will start taking notice when contractors ask for IR35-related amendments to contracts. And we could see the introduction by some of standard substitution clauses and the removal of other clauses that could be interpreted as giving clients control over their contractors.
Both of these are key tests of employment used in IR35 cases, and many clients and agencies have, up to now, been less than supportive of contractors trying to negotiate sensible IR35-related changes to contracts. That should begin to change.
Indeed, when the story was first reported by Accountax Consulting, it included this stark warning to clients: “With this important change in employment law, there has never been a more important time to make sure that your self-employed subcontractors are not classified as workers.”
So, let the ‘permtractors’ try and claim their unpaid holiday pay, which they can do within 3 months of leaving a long contract. After all, they’re not true contractors and if clients want to use them as employees, they should enjoy employee benefits.
And the benefits could be considerable. As holiday pay is now a statutory 28 days per year, if a permtractor has been on a client’s site for 10 years, that’s 280 days pay. Given the average working year is 220 days, that’s not a bad deal! And, the publicity of a few cases when the permtractor wins will place additional pressure on clients to review their contractor rosters and re-visit contracts.
Employment Law case law is applied to IR35 cases as well as to Employment Tribunals. So, those permtractors who fail in their bid to win employment rights will be contributing to the greater good, by establishing contractors as ‘not employees’, and therefore outside of IR35.
It doesn't hurt to put clients on the spot occasionally. The recent rulings do just that, by showing clients that in exchange for a little understanding over contractual clauses, they’ll not only have happier contractors, but also be insuring themselves against huge future claims.