With the Supreme Court dismissing the appeal in the Harpur Trust vs Brazel case, Crawford Temple, CEO of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance reflects on the case and what it means for umbrella providers, workers, agencies and the whole supply chain.
The case centred on the correct application and payment of holiday pay. Harpur Trust had decided to allocate holiday pay at 12.07%, in the case of a worker who was part-time, on a zero-hours contract, and only worked during a limited number of weeks over a year. 12.07% is a figure used by many umbrella companies as a basis on which to retain provision for holiday pay, for those who work a full year (5.6 weeks holiday / 46.4 weeks worked = 12.07%), although on close examination this percentage was incorrect for a worker working a fewer number of weeks over a year.
As a private school, Harpur Trust operated on a 32-week working year and therefore the percentage allocated for holiday pay should have been applied at 17.5% (5.6 weeks/32 weeks worked = 17.5%). Had that provision been made in this case then the correct amount of holiday pay would have been allocated and paid and the case would never have materialised.
Key points to note:
Where there are periods when a worker will neither be working, nor on paid leave, but where the engagement nevertheless continues, but where those periods are predictable in length, (as is the case in the Education Sector), then as long as the correct percentages are used there is little impact as a result of the ruling.
Where there are periods when a worker will neither be working, nor on paid leave, but where the engagement nevertheless continues, and where such periods are not predictable in length, there is more of a problem – because the actual amount which will be needed to make proper provision for holiday pay will depend on the number of unworked weeks, and so cannot be calculated in advance of those weeks.
Overarching Employment Contracts and SDC
Where non-worked weeks are less predictable, as is the nature of flexible contracts, umbrella companies that continue to operate on the traditional overarching employment contract could face increased risks. Those umbrella companies which rely on overarching employment contracts to support workers operating outside Supervision Direction and Control, which allows those workers to claim expenses, will face the highest risk because the required contractual terms, and operational processes must show an ongoing employment relationship between assignments.
One of the main reasons behind using overarching employment contracts is that many agencies require an umbrella contract to guarantee at least 336 hours of work, one of the key mutuality of obligations in such a contract. This is a legacy from the past where, for many years, recruiters have misunderstood that any umbrella that did not include this obligation in their employment contract was likely to be non-compliant.
The raft of legislation changes has changed all of this. The SDC legislation confirms that where a worker is under SDC then each assignment will be treated as a separate engagement for employment purposes. This overrides overarching employment terms.
And, whilst many umbrella providers use overarching contracts, they are not generally relying on the overarching relationship but merely satisfying the agency demands of guaranteeing 336 hours.
Where this is the case, we expect contractual updates to be implemented to tighten termination clauses in contracts to protect companies from the risk of claims as a result of the Harpur Trust vs Brazel ruling.
So what will be the outcome for umbrellas?
Those engaging workers on overarching employment contracts and other contracts which continue between assignments will probably face the greatest exposure. Without significant changes, they are likely to be at risk of facing challenges and potential significant liabilities.
And, umbrellas whose workers have contracts which are not conventionally overarching may not escape lightly and will need to implement updates to their employment contracts, particularly regarding termination clauses.
Agencies also need to understand the contractual arrangements operated by their umbrella companies and update themselves on the viable contractual terms that umbrella companies can operate, in the majority of cases without any guarantee of 336 hours.
As usual, when there are any changes that affect umbrella companies many are quick to jump in and offer up predictions that the changes could signal the demise of the umbrella industry. Like previous predictions of doom that didn’t come to pass I am sure that this latest case will not mean the end of umbrellas as long as they are quick to act and put the appropriate changes in place to meet the new requirements.