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.

Shes to greedy she is already claiming and wants to be paid for a week off which will be covered by benefits and her holiday is mo doubt covered by benefits and work money

No way you should pay and if she has an issue with it she can leave

YANBU - you are not morally obliged to pay her annual leave. You may need to (effectively) do so if you need her to keep working for you, but you are basically being blackmailed into it. You are being foolish using someone who is prepared to defraud others to get more money for herself. Especially in a position which leaves you vulnerable if she should leave.

You say she will be difficult to replace but have a think about how hard it will be to replace her later, especially at short notice, because the signs at the moment are that she is not someone to trust in a working relationship.

As someone (but sadly, not enough) said up there, tax and employment status are different. In tax you are either self-employed or employed (and that is the check the online test above does).

As a matter of employment law though she could be an employee, a worker or self employed. 3 choices. If you are a worker you can still be self-employed for tax purposes.

Workers and employees are entitled to holiday pay. Talk to a lawyer or HR consultant (HT @flowery) about status for employment law purposes, and leave the accountant to give you tax advice.

By all means say no you are self-employed, but remember that the whole facts actually determine the status under employment law. If you expect her to do the work personally, rather than being happy she sends her neighbour in, she may well be a worker. Whose equipment does she use? Is she insured? The fact you had to spend three months training her does not suggest self-employment to me!

And my use of “choices” up there may be misleading. You can’t just pick a label. You need to ensure it is looking and quacking and actually being like a duck, as said above.

I guess I feel bad because I know she's not got a lot of money and I feel a little responsible for her
If you need a wake-up call: you do know that it is you and not her that will get into trouble with HMRC if they find against you. You will be the one to have to find the back tax, unpaid holiday pay, employers liability insurance, etc.

Treat this as business, because that's what it is.

How was the rate of pay decided in the first place? Did you decide it or did she? The freelancers I know don't necessarily get to say what the rate of pay is. The companies they work for say what they're prepared to pay for, and the freelancer decides if that's OK or not.

PIP isn’t income related. It is designed to recognise people with disabilities have costs to bear over and above a non disabled person. It’s not so easy to claim it these days unless you are entitled. I’m not sure why you would mention the fact you think she is a benefits cheat on a post which is apparently about your contract with her, unless you are looking for people to exercise judgement in answering the question.
If you think she is cheating, report her. Ask your own accountant whether you need to pay her for time she isn’t working.

I was a self employed dentist, HMRC agree with this as some conditions apply but not all I only worked in 1 practice, I did generally do set hours as patients expect you to be there when they have booked appointments

however I can change my hours if I don't want to work the second thursday afternoon in october as DD has something on at school I can close my book before any patients but in it for that time, if I want 6 weeks holiday I can get a locum to cover this, I buy very little of my own equipment but if anything needs replacing ie a recent filling fell out or a fairly new crown broke I have to replace at my expense, I chose which courses I do and when and pay for them, I pay my own lab fees ( for making dentures crowns etc ) and choose which labs I use

just a few examples of how some conditions of self employment are met and some don't seem to be but I was self employed, if however I was only allowed 28 days holiday with no option for a locum, and no option to change hours, I had to wear practice uniform, I was under an obligation to use specific laboratories etc that would then cast doubt on being a self employed dentist

If you pay her holiday pay she probably becomes an employee and you will also need to pay sick pay and employers NI etc and deduct PAYE

There are specific criteria to be met in the case of self employment . I can't remember all of them but the salient ones are
There can be no master servant relationship
The person must supply the principal tools of their trade
They retain the right to substitute an equally qualified person
There must be an element of risk i.e risk of loss instead of profit.
Former HMRC employee here who dealt with status a lot although over 20 years ago. The principles haven't changed although the language may be more modern.

You don't have to work for other people to be self-employed. In the industry I'm in, a lot of freelancers (but not me) do large projects, where they work at a consultation, festival or exhibit for 2 to 18 months, full time, as a contractor. They often work ridiculous hours during these periods and for very high pay. Then they are back looking for work. This is very like someone on lots of short employment contracts, but they manage their finances and choices of work differently, provide their own resources, office space, et cetera.

just say look if you want holiday pay then you need to be an employee etc

HOWEVER I suspect by law she IS an EMPLOYEE as a freelancer she should be contracted for hrs and be able to suit herself when she does them etc - check out with HMRC the rules on this - there are a series of questions they look at to determine if she is or isn't an employee. If she is an employee you will need to pay her NI, Tax backdated to when she started regardless of what you paid her. I would try to find a compromise to this specific situation where both of you are OK with it - but actually look to change her contract so she is an employee and she has no option to accept that - accept a slightly lower rate of pay for Holiday and pension contributions although if she is on benefits as well she may not be interested and you may need to recruit etc

It's lovely that she would like to be paid for 'sitting on her ass' but by the sounds of it she already is... sounds like she will be claiming ESA (employment support allowance) which can be up to £190 a week and you topping up her income! So NO don't pay her for not being at work she can't have it every angle she wants..... plus if you do it now she will expect it in the future and your not a piggy bank to her.

If you expect her to do the work personally, rather than being happy she sends her neighbour in, she may well be a worker

I just read OP's posts again ... not sure if I'm missing something but I can't see anything about "sending a neighbour in"?

Someone claiming ESA, can also do permitted work

If it were possible to give her extra hours where she would actually work, then I would do that. But I wouldn't pay her for sitting around.

Don't feel guilty.

Reiterate that you're happy to take her on as an employee if she wants annual leave included, but as a freelance you can't do it.

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*

I can state as abaolute fact that YOU CAN CLAIM BOTH HOUSING AND PIP and work!!! PIP is not means tested, she would qualify for it wether she had a job or declared her income or not. Housing benefit does have certianly a saving fresh-hold in fact you have to send in your last 3 bank statemenrs and any wage slips but it wouldnt rule her out completely.
As some one else has pointed out you can even clame work related activity ESA and work up to 15 hours a week in permitted work. In fact what do you think ESA stands for oh Employment support allowance ie its to support you if you have a low hours job
As i said in my post which you have quoted for tax NI, and i'll add to that morallt and ethically YES SHE IS IN THE WRONG, she is trying to play the system. However she is not defrauding the benefit system.

puzzled, it was a slightly flippant example - a requirement to perform the work personally is important for employee/worker status. If the individual is allowed to send someone else along instead, and particularly if they have genuinely used that right, they are probably self-employed.

Employee pension? NI? Tax? Us paying for benefits? And all you’re worried about is pay8ng her for AL???!!!

You’re welcome, anything else I can give you?!

@isnappedandfarted

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?'

Definitely not. She can't have her cake and eat it.

@Puzzledandpissedoff

That was from someone who was making a point about her employment status. A self employed freelancer can contract out to someone else to do the work; as long as it is completed to the relevant standard and spec then they can hire their own staff to do it. But an employee cannot sub contract out (if you're employed in Tesco, you couldn't then pay someone else to go do your shift). So, if she is allowed to hire her own staff to do the work then it backs up being self employed. If she's not, then she's an employee or worker.

A sole trader doesn't need to work alone. A sole trader can have staff. Builders are sole traders, if you hire one he will likely turn up with the team he pays. You have contracted him for the work, but he doesn't need to be the one to do it. He can pay his team who will do the build and you pay him. Same thing. OP contracts this woman, but she can then have her own team do the work. If she's not allowed to do that then she's being treated as a worker, not a freelancer, and is therefore entitled to holiday pay.

I see what you mean, Thundercracker and Fiftyshades ... my fault for not understanding you properly

all rules about self employment are guidelines with a build up of more yes than no's someone could be self employed and provide no tools a freelance person is not normally expected to provide own desk, they may have their own laptop but depending on type of work they may use the PC's in the company they are contracted to

as a dentist you won't provide most tools as they are permanent features of the surgery the chair drills etc, as only certain drills are compatible with certain makes of chair you need kavo drills for kavo chairs ( this is an example)
on the other hand you would certainly expect a self employed carpenter to have his own saws, a self employed hairdresser renting a chair will be using the salons equipment

OP contracts this woman, but she can then have her own team do the work. If she's not allowed to do that then she's being treated as a worker, not a freelancer, and is therefore entitled to holiday pay.

This is one of the measures, but it's not the only one. You might have a contract that says you must do the work yourself or that the client can reject a substitute for any reason and still validly be self-employed - I've checked through this website www.tax.service.gov.uk/check-employment-status-for-tax/setup as though I can sub-contract I do not, and I wanted to be sure I was safe.

There is recent case law that contradicts that HMRC guide so don't totally rely on it.
As Teacup says things do vary by trade as well as to what's reasonable.
I have in my contracts that a substitute will have similar skillset etc - if I sent just anyone e.g. a neighbour I'd end up having to fix it and clients would be pissed off!
Overall it's about control in a way. The client says what she wants done but the self employed person will usually decide how, when and by what method. Of course this will vary slightly as some businesses have set hours and others have usual ways things are done e.g. fixing a boiler. I tend to do office hours because of childcare and because clients are around but I can easily say "I'm not working tomorrow"
The alarm bells for this particular case are the long training period which might suggest the client is controlling how the job is done.