Holiday pay claims to come under closer scrutiny

Following the Stringer v HMRC case last month, businesses will be taking a closer look at their sub contractors.

After the long running case of Stringer v HMRC finally reached its conclusion at the European Court of Justice (ECJ) earlier this year, a warning has been sent out to businesses that engage self-employed sub contractors to ensure they cannot be classified as workers.

The case itself centred on two key questions: are workers entitled to take paid statutory holiday while they are off sick? And are employees who have been off sick for the part or whole of a leave year entitled to be paid in lieu of accrued statutory holiday if their employment terminates? We now have the answer to these questions and, for employers, they are not welcome.

The ECJ (ratified by the House of Lords) ruled that workers do accrue the holiday for the entire duration of sick leave and must be allowed to take it on their return to work, whenever that is, or to be paid in lieu of it if their employment terminates. As a result, the existing UK Working Time Regulations, which required employees to use all holiday leave within the current year or else it was lost, is no longer valid. This potentially leaves businesses exposed to back-dated claims for several thousands of pounds – particularly since the annual holiday entitlement has risen to 28 days.

Although genuine contractors and freelancers are not entitled to holiday pay, anyone who has not been operating through an umbrella or limited company service could still be classed as a ‘worker’, which would mean they are entitled to holiday pay and other benefits. Companies who employ self-employed contractors will now need to check that these individuals cannot be classed as workers as they will be liable.

Finally, in light of these new regulations, it will be important for all employers to undertake a full review of sickness, holiday and maternity policies without delay and ensure they manage sickness absence effectively and efficiently. Allowing absence to continue longer than is necessary will see workers ‘racking-up’ substantial holiday entitlement and this could create significant financial liabilities and, where employees seek to take significant periods of holiday following extended sick leave, it could also cause severe disruption to the business.

Key Points

  • Workers accrue four weeks’ holiday per year throughout any periods of sickness absence.
  • Workers must be allowed to take this holiday on their return to work.
  • Workers must be paid in lieu of this holiday if their employment terminates.
  • Employers must decide how to deal with the additional holiday conferred by the WTR and any contractual holiday and expressly set this out in sickness, absence and/or maternity policies.