Uber has been making the headlines in recent weeks, losing its appeal against a landmark ruling which ordered it to treat ‘partner drivers’ as workers. Until this ruling, the driving app giant had classed its drivers as ‘self-employed’, thereby avoiding the responsibilities and obligations that accompany employment. However, ongoing legal proceedings have successfully challenged this model, meaning that Uber must now class its drivers as workers and afford them the corresponding rights under UK and EU law.
But what does this ruling mean for smaller businesses in the transport and distribution industry, who use limited company drivers and workers to supplement their core team?
In short, anyone can work for a company as a self-employed Limited Company contractor, during which time they will be expected to use their own equipment (e.g., their own vehicle), administer and declare their own payments and taxes, and manage their own annual leave, sick leave and pension entitlement. They essentially are not covered by employment law, although they do have protection from discrimination and health and safety abuses.
However, if a self-employed contractor is only working for a single company, it is highly debatable as to whether this constitutes ‘self employment’. If the relationship turns sour (or the driver’s situation changes), they could quite legitimately insist that they are in fact directly employed, and are simply being paid via a Limited Company solution. The major consequence of this is not how they will be paid, but instead that they will now be eligible for all employment rights – including the minimum wage, holiday pay, sick pay, paid notice and a workplace pension. If they have left the company, they could even pursue an unfair or constructive dismissal claim. This is, in effect, what has happened in the Uber case.
Just as important for businesses is the tax implications of contracting a limited company employee, particularly in relation to the recent introduction of IR35 – anti-avoidance tax legislation designed to tax ‘disguised employment’ at a rate similar to employment.
IR35 means that self-employed contractors (and particularly non-UK workers who may be working in the UK to make as much money as possible to take home) can avoid paying the required tax at the required time, with this debt then transferring directly to the company. HMRC view this as disguised employment and will argue that the company should have employed the individual and deducted the required tax themselves, holding them liable for any fines, or late payment default charges. This can happen with multiple workers at the same time, as they all talk to each other and often share the same ‘good’ accountant.
It is for these reasons that employing a limited company driver directly is not the ideal solution that many companies assume it to be, and why the short-term gain of covering work relatively cheaply is far outweighed by the long-term pain of ‘disguised employment’ taxes and potential employment law complications. It can often prove to be a very high-risk strategy with significant associated unexpected costs.
However, by engaging limited company workers via an agency, in any event of an IR35 or employment law claim, the liability transfers to the agency not the client – protecting the company from the potential risk of disguised employment taxes and potential legal complications. Agencies like Savanna spend a lot of time and money each year to ensure that we (and our clients) are protected from any such events.
So if you are tempted to supplement your driving team with limited company workers, our advice would be to carefully weigh up the not insignificant risks before making any decisions. While it may seem like a cheaper solution in the short-term, in the long-term it could prove to be an extremely costly way of employing drivers.