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.

According to HMRC the 'employee' cannot choose their work status- it is up to you to choose for them and one person can have more than one job. You can check online with HMRC what their status should be (it's pretty ambiguous) but from the sounds of it, she should be payrolled and not self-employed. If HMRC come in to check you out, you would be the one liable for the fines.

Proceeds. Of. Crime.

Ok so I called HMRC today and they asked me a lot of questions and I fell into the grey area so was passed on to a specialist who asked me even more and they finally came to the conclusion that she can do the work as self employed. For my own peace of mind I asked them to send me that in writing, as I'll admit some of the messages on here were getting me concerned.

As for her, we've resolved the holiday pay thing.

I'm afraid I haven't read any of the recent messages as I was being too sensitive about the accusations of either accusing someone of benefit fraud or gaining myself from benefit fraud. For what it's worth, it doesn't save me anything to pay her this way as her overall pay would fall under the tax threshold for both income tax and employers NI if she were an employee. The job doesn't require many hours a week.

Thank you to everyone for their helpful info.

If you pay her annual leave, HMRC will view that as your acceptance that she is an employee. Because you will have treated her as one. I hope you've never introduced her to anyone or referred to her as an employee other than on this forum. They'd love that.

Your accountant doesn't sound very competent if they didn't explain any of this to you, or actually thinks HMRC wouldn't look through the supposed contract to the reality of your set up. Things have moved on since the days of just using "for" not "of" in a contract and that being considered sufficient.

You have a funny set of morals if your concern is with paying annual leave that isn't due rather than your involvement in criminal activities.

Get yourself a better accountant. The advice you've had from your current one has left you massively exposed.

I'm not going to get into the specific trade for obvious reasons but she and I are both trained in our field, I knew her from work when she was an apprentice. I left the company to set up on my own and after establishing myself got offered a fairly significant freelance contract of my own abroad. As a result I needed to either put the business on hold or find someone to cover the basics for me. She stepped up and although she is less experienced, having only just finished her apprenticeship, she is local and I know her family so felt comfortable giving her access to my premises.
She did require training as we used different systems and equipment at the work before. She has yet to subcontract anyone in but tbh so long as she prewarned me then it'd be fine - this is presuming the subcontractor was also qualified and ideally someone we'd worked with before and not just "her neighbour".

She could be an employee, a worker or a person genuinely in business on her own account. If she's an employee or a worker, she's entitled to paid annual leave under the Working Time Regulations. Plenty of people who fall within the 'worker' definition are self-employed, freelance and/or casual. The tax arrangements and the label you attach to the working relationship aren't decisive. Sounds like you need to take legal advice.

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 no such thing anymore.

Even if you are on ESA and in the support group (classified as no realistic possibility of working) you can still work. You can earn £100 a week without loosing any ESA.

PIP is independent of any other income.

Housing benefit IS dependent on income but you can still be claiming it and working.

As for 'being able to afford a holiday' my brother lives in a holiday place, I have had 'holidays' which were a train ride paid by a relative and staying at my brother's house.

She isn’t entitled to holiday pay whilst SE and she’s hardly going to take it further whilst claiming and not declaring income. She’s a CF who wants it all ways.

You could always 'engage' her through a temp agency. You could do this for up to 2 years which might cover the timescale you need. The temp agency would pay her annual leave , pension & sick. They would be able to substitute someone else if required which might provide more resilience to your business should she leave. You could frame this to get it she continues to request paid leave,sickness from you.

I am intrigued that HMRC came to the conclusion that she was self employed, when most of the available facts on the thread pointed to employment.

Be sure to keep the evidence from the HMRC correspondence to back up this status.

As for her, we've resolved the holiday pay thing.

Don't leave us hanging like that! Resolved it how?

Also, good idea to get that conversation/decision from HMRC in writing.

You don't need to pay her as she's a freelancer. But I would be even less inclined to pay her if she's claiming benefits as well as working! She sounds like a right CF. If she kicks up such a big fuss then you should remind her that she is, effectively committing benefit fraud.

Self emotes people don't have to work for more then one company to be self employed. Most if not all driving instructors are self employed. They don't get paid annual leave or sick pay either.

Baaba Where do you get that 2 year rule from?

”You can work for a single client for up to 2 years after which you need to leave to continue being classed as a freelancer and not employee”

Absolute codswallop, there is no such rule.

That’s nonsense. Read the HMRC website linked to above. There’s no one single thing that determines whether you are an employee or a self employed contractor. It’s a lot of factors taken together.