A recent tribunal has again caused tremors through employment law and the construction world. In the recent case, the main Contractors’ relationship with their workforce was scrutinised and tested to determine the impact on HMRC’s Construction Industry Scheme (CIS) and the employment status and rights of the workforce.
Lee Richards is a self-employed multi-trained carpenter who began working for Waterfield Homes Ltd, a registered CIS contractor, in October 2010.
Mr Conyers, owner of both Waterfield Homes LTD and Unity Build & Repairs LTD, has a diverse workforce of tradesmen working for his companies, none of which are registered employees.
Day-to-day work for Lee Richards was normal working hours, Monday to Friday, and he worked solely for Mr Conyers.
On 14 February 2014, a letter from Lee Richards to Mr Conyers was supposedly sent. Mr Conyers had denied this, but the letter thanked Mr Conyers for three years of employment and asks for an increase in his hourly rate to enable him to take annual leave.
From November 2018, Mr Conyers issued employment contracts following advice to regularise “employment relationships” from his law firm. Richards objected because the contract with which he was provided stated he was an employee from November 2018, when he felt his start date was back in 2010.
What was the case about?
Although CIS is mentioned throughout the case, the focus lies on the employment status of Lee Richards, determining if he is an Employee, Worker or Self-Employed. All three options require different responsibilities from Mr Conyers.
The case reaffirms that businesses cannot rely on contractors inside the CIS for their tax payments to determine employment status.
Why did the case focus on employment law?
Courts and tribunals apply legal tests to identify if an individual will fall into an Employee, Worker or Self-Employed status. The test covers:
- Personal Service
Does the worker have to perform the work themselves, or can they send a substitute in their place?
A self-employed individual would be able to send someone else to do the work.
- Mutuality of Obligation
A responsibility to provide work, and the commitment of a worker to accept and perform that work.
A self-employed individual would be able to accept and decline work.
The decision of what work is needed, when it’s done, and the way in which it’s carried out.
A self-employed individual would be free to choose when, where and how they perform the service.
Lee Richard worked solely and under set hours for Mr Conyers, leaning towards Richards being an employee.
What was the outcome?
The tribunal assessing the employment status of Lee Richards concluded from facts that he was an employee, despite being paid under the CIS scheme.
How will it affect Lee Richards?
As an employee, Richards is entitled to National Minimum Wage, Holiday and Sick pay as well as contributions to a pension scheme. In exchange, he will need to carry out all work set by Mr Conyers under his desired specifications.
How will this affect Mr Conyers and his companies?
As an employer, Mr Conyers would need to pay Richards on PAYE, including tax and national insurance.
He will also be considered for heavy fines from HMRC for his lack of compliance towards the CIS and employment status.
At Indigo, we work as a Commercial Contractor in the chain between the Contractor and the Subcontractor. Our onboarding process flags employment status issues, and we ensure all subcontractors are compliant with HMRC regulations.
For a free business health check to make sure your business is legal and compliant, get in touch.