to not pay my employee annual leave?

[ISnappedAndFarted]

I run a small online business which, due to my FT job, I cannot run myself. It has premises which I'm tied into, so I can't just give it up, plus it's my baby so I don't really want to.

An old colleague of mine offered to step in whilst I'm away and she now freelances for me, running the business.

I wanted to employ her outright (ie. get PAYE registered etc) and have employee insurance etc however she wanted to be self employed and so invoices me each month for her pay.

I've found out that she's also claiming benefits and is not declaring the money I pay her - she is claiming housing benefit and PIP, possibly others but I'm not an expert.

She is going away in a week for a holiday and obviously won't be in the office for this week.

I have calculated her hours for this month and messaged her to invoice me for that total.

She is saying that she wants to work the hours she would usually be doing in the week she's away, but the following week - so doing 0 hours one week and double the next, to make up the missed hours.

Except the nature of the business means that there will not be a need for her to do double the hours in that week. She'll just be sat there.

I'm having to make continguencies for her being away for that week that will be affecting business income, which is completely fine as obviously she can't work endlessly.

I've told her that she's not needed for double hours and whilst she's welcome to take the week off, as she's a freelance employee she isn't entitled to annual leave. She is not happy with this and wants me to either pay her for that week, or allow her to do the extra hours.

AIBU?

Obviously if she were a permenant member of staff, I'd have to pay her annual leave etc but it was her choice not to be.

Honestly, I am looking at replacing her with a "proper" employee as soon as I can. But I'm abroad for work for at least the next 6 months and not sure when I'm going to be back for more than 2 weeks at a time for perhaps the next year - so its not straight forward.

I could use an agency but I have a feeling that'll will be impossibly expensive.

If she only works for you and does so regularly, I'm not sure whether the HMRC would agree that she is self employed. The fact that she is registered as such doesn't mean that they won't decide it is fraud at a later date. As you are the one that has benefited from this arrangement, by not paying annual leave and other benefits you will potentially be in trouble rather than her so I would be very careful.

But your OP is wrotten in a tone that suggests that shes claiming these benifits and not declaring he income cos these would stop.

I can't state this as absolute fact but this is my understanding of the situation. She is not declaring her income from my business because she is currently receiving benefits on the basis of not having any source of income at all, and these benefits are linked into an illness that causes her to be unable to work.

There is a difference between what employment law considers an employee (or worker, because that is also relevant to this) and what the tax people define it as. In this case you appear to have control over her hours and work, so it is not clear but she may be an employee or worker, not self-employed. I agree that whilst she might be on the fiddle, you are not necessarily in the clear if she is, because as a possible employer you are legally responsible for knowing what you are doing. And I'll be honest - I think she's an employee from what you've said about her being contracted to work a specific period.

Whatever, I'd suggest legal advice, not an accountants! And in writing too, because even if that advice is wrong, you'd still be responsible, but the consequences won't be as bad if you can show that you did get advice.

On the other hand, if she's a benefit cheat I'd turn her in. Nobody has a right to be a thief.

Hate to say this, but if she's dealing with your company finances, please make sure she doesn't rip you off now. She's shown that she isn't too worried about morality and money.

You can be self employed and claim working tax credits/ child tax credits, housing benefit and PIP. I am self employed and have been on benefits too. She would have to fill in forms and supply proof of earnings etc and that includes how much savings and money you have in the bank
I think you are right not to pay her holiday pay. My daughter was self employed too working for a company and didn’t get paid holiday pay. You are not liable for that.
I don’t think her claiming benefits is your problem though

Why does everyone assume that she is fraudulently claiming benefits. OP may not pay much so she may be entitled to housing benefit and PIP is not effected by whether you work.

HollowTalk No, she's there to do a very specific task, she has no dealing with customers or any admin at all.

Self employed here and would never dream of asking a client for holiday pay. Or sick pay, pension or any other employee benefit.

It's not really clear on what she's doing in the job but if she's doing set hours and set tasks and you are thinking of replacing her with an employee you could be in disguised employee territory here.
There has been recent case law that contradicts what it says on the Hmrc website. I'd ask your accountant for advice on this. Mine often checks my contracts and offers an opinion on this.

@ISnappedAndFarted

Explain it to her like this. Childminders are self employed, but they will have a contract with the parents stating that they must be paid for 4 weeks holiday a year or whatever. So, they get time off and get paid.
She hasn't had you sign a contract to give a retainer or minimum payment regardless of work done, or to pay her 4 weeks off.

But, it really sounds like she's functioning in the position of an employee, so you really need to get her status in your company changed to reflect that before you get in trouble. If she is cheating on benefits then it's possible she will be investigated one day, and that investigation will lead to you and open you up to liability if HMRC get involved and say you should have had her on the books as an employee.

OP, you really need to check where you stand legally. Whatever her tax return says or doesn't say is irrelevant. Whether or not you can afford an agency is irrevevant. You have to comply with employment law.

Either she is self employed (as determined by HMRC) or she should be employed, with benefits such as paid annual leave, not to mention NI contributions and in all likelihood, a workplace pension. You will have to pay all these in lieu, plus a fine, if you are effectively exploiting her, and/or, evading tax.

From everything you've said so far, she sounds like an employee. You need to check and then follow the appropriate line - if she's self employed, do not pay her holiday or it will cause you problems later on. If she's not, pay her and get your admin sorted out asap.

The main deciders are a) whether or not she provides services to other parties, and b) whether or not she could stand to make a profit/loss from your agreement. Check the HMRC list for criteria.

Looks like a 'who blinks first' situation. She can't complain legally but is trying to guilt you into paying her. You're worried about losing her.. but realistically, it'll be as hard for her to find something that suits her needs as it will be for you. Plus she'd be losing the considerable friendly support you have provided with things like tax returns.

Don't imagine you owe her a massive favour here. Providing you're not paying her an unfairly small amount for the work she does, then it's her responsibility to work out how to increase her income / decrease her outgoings if she is short of cash. You're acting like you owe her a (better) living.

I've been self-employed and NEVER received holiday pay or sickness pay
That was included in my hourly rate, so I hope you aren't just paying her NMW

If you pay either holiday or sick pay, it would weaken your case that she is self-employed, if ever HMRC look into it.

I hope you are correct that she has no access to money within your business, including authority to bill or buy things.
She sounds dodgy

I think the key point here is that she is a subcontractor and not an employee. She is responsible for her own tax affairs and should manage her holiday requirements too. I've never paid a plumber or builder for their holidays.

Given that she's fiddling the system and the UK taxpayer I don't think you should feel morally wrong at all. Firstly, she's taking the piss out of you by wanting her cake and eating it (being freelance, but wanting benefits), and secondly she's claiming money fraudulently. Stick to your guns OP and if she keeps on at you I'd drop a line to HMRC ...

Am I morally obligated to pay her for a week she's not working when I know that she is heavily relying on the money?

No you're not; you'd also be very foolish to as it would set up expectations for the future, which like her "making you feel guilty" is often a complication of employing folk you're close to

Given the situation with HMRC/benefits you already know she's less than honest when it suits, and now you've said you'll be away for six months. Do you really trust her to look out for your/the company's best interests during that time?

It doesn’t matter how much you or she “ insist “ that’s she’s self employed . If HMRC catch up with you then they will make their own determination.

The fact that you have spent three months training her sugests that she is an employee.
Also she works at your premises using your equipment .
She works only for you and not for any other employer.
You decide what she has to do although she decides when to do it.
I’m assuming that no one else can substitute for her because they won’t have the 3 months training provided by you.
If she did the work wrong, would she put it right in her own time ?
Do you pay her travel and other expenses ?

You know she is committing benefit fraud but have done nothing. And now she’s asking for ( and you are thinking of paying ) a weeks annual level.

This is very foolish , you will get burned badly by this. Either terminate her consultancy contract now or insist that she becomes an employee. Do this now before HMRC come after you.

Don't pay her! She will be getting enough on benefits, PIP and working ( which is also illegal) to be honest I would be very careful as it is fraud and you may get caught up in it

Can she assure you that business will bring in double the income if she does double the hours in one week? If yes then she will earn her wage. If not then I don't understand how she can make you feel guilty for not allowing her to work the double hours.
No one is knowingly going to pay someone when they know it will be a total loss for them. You started the business to profit you. Not employees. Same as if business made no profit it would be you losing out not employees. She is clearly taking advantage. Looking out for number one. So best you take a leaf out of her book.

You cannot pay her holiday pay. If you do, it is a world of trouble for you because it would be a sign shes an employee and you could end up owing employers NI and tax on what you've already paid her.

I just realised that my post about how she'd carry on while you're away might be seen as a reason to pay and "keep her onside"

If so, please don't even consider it. As I've said she's already shown herself to be dishonest, and any such payment could encourage her to believe she's "triumphed" and to fill her boots

I agree that her intrinsic dishonesty makes her a very dangerous employee to have. Please check that YOU are not in breach of any HMRC rules by employing her as you do and knowing that she's fraudulently claiming benefits on the side.

Generally you pay self employed / freelancers a higher hourly rate than PAYE employees. This is to cover the fact they don't get sick pay or holiday pay (and have no guarantee of regular work).

As an aside I'd just like to warn you that my accountant told me that HMRC are tightening up on employers who employ people as self employed rather than employed. And if your lady isn't paying her tax be very careful because HMRC can come after you for it.

I run my own (one person) company - sometimes I've had one client, at the moment I have 3. I set the rate for my services, and I invoice clients for them.

What makes me not an employee (on balance, because the inland revenue makes its own decisions) is:

I use my own equipment, in my own office.

I decide where and when I work (although I am on call, and do guarantee availability for a set number of hours, and for one client, during a set time-period.

I can delegate my tasks to a subcontractor if I see fit (although confidentiality requirements make that unlikely)

I do have a 'retainer' for one client (the one I am on-call for), and I have a monthly minimum charge for another - but I maintain a high level of autonomy.

You should seriously look and see if this is the case here.

Explain it to her like this You don't need to explain anything to her. Point her to HMRC. If they told the OP she's a freelancer then it's highly likely that she is; and the HMRC website will be able to explain this.

Morally yes you should pay her holiday pay. She clearly has not realised that she needed to increase her day rate to cover her holiday time off. It sounds like this is the first time she has done freelancing so didn't realise.

Another solution would be to renegotiate her day rate with her to something that would cover at least 28 paid days off per year. So, give her a payrise, but don't pay her for holiday days.

Pah hah hah! As a self-employed person it is up to HER to 'realise' what her day rate should be. No one's ever paid me holiday or renegotiated my rates with me to cover for my failure to take things like that into account.