Monthly Archives: July 2012

TUPE or not TUPE

. . . or The slings and arrows of outrageous fortune

In Eddie Stobart v Moreman the Employment Appeal Tribunal (EAT) decided that, for there to be a TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006) “service provision change” the group of employees had to be deliberately organised to service the particular  client. The EAT decided that, in the Stobart case, the fact all the employees happened to work on a shift that provided services to that client was not enough. The TUPE regulations define a service provision change transfer as applying when there is an:

“organised grouping of employees”, which has
“as its principal purpose the carrying out of the activities … on behalf of the client.”

The EAT decided where a combination of circumstances (largely shift patterns and working practices) meant that a group of employees were as a matter of simple fact working mostly on tasks which benefitted a particular client did not meet this test.

The EAT pointed out that TUPE does not say merely that employees should in their day-to-day work in fact principally carry out activities for the client in question – TUPE requires that the activities are the principal purpose of the organised grouping of employees to which the individual belongs.

Whether an individual employee works 50% or more for a particular client is not any part of the test under TUPE 2006. It was part of the test under the 1981 version of TUPE, but that wording did not continue into the current 2006 version of the Regulations.

There are still a number of grey areas left in TUPE – as it seems there have always been. For example – could an “organised grouping” have more than one “principal purpose”? It might be that the “time proportion” test is relevant here – applying to the whole grouping. Or perhaps “principal purpose” is to be judged by the priority of the work?

The world of work streams and dotted line reports has yet to be fully explored in the context of TUPE. Does work streaming mean no group has a principal purpose? Or should we be tempted to say that work streaming means no-one is part of an organised grouping of employees?

What difference does it make in real terms if a transfer is, or is not, covered by TUPE?

A)     If there is no TUPE transfer, then any workers who were working on the project/task/service will not go through to the new contractor as the new contractor’s employees.

  • It is the current employer’s job to find them alternative work, reassign them, or if necessary make them redundant.
  • Any liability for back pay or benefits remains with the current employer.
  • All unfair dismissal, discrimination, equal pay risks remain with current employer.
  • All contractual liabilities remain with current employer.

B)     If there is a TUPE transfer, then the same workers will (as a matter of law) become the new contractor’s employees (with their full service and contractual entitlements – save for pensions – intact).

  • It is the new employer’s job to find alternative work, reassign or if necessary make them redundant.
  • All the other liabilities under A) transfer to the new employer

Where an argument breaks out between the employers about whether TUPE applies, individual employees may feel lost in the no-man’s land of litigation between two employers who are having some kind of custody battle where no-one wants the kids.
HR on both sides can do a lot to make sure that the original tender documents (where they exist), pitches for business,  take on board the statutory TUPE obligations. HR can go beyond that, if allowed into the negotiating process early enough, and can help shape a contract for services that incorporates thinking about employees and service levels from the start.

Don’t forget the TUPE regulations are a set of minimums not a set of maximums.

Annabel Kaye is Managing Director of Irenicon Ltd, a specialist employment law consultancy.
Tel: 08452 303050 Fax: 08452 303060
You can follow Annabel on Twitter
www.irenicon.co.uk
www.koffeeklatch.co.uk
www.balancingthebump.com

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Filed under employment law, TUPE

Getting to grips with ‘the help’

The natural growth pattern for a start up business is to have one or two unpaid owners who start it, then they get paid (a bit), and then other people start helping in the business.

Family members help out from time to time, some casual workers, some freelancers, even interns and apprentices. Some businesses never get out of the ‘freelance’ mode and take on employed staff.  Some employ people and carry on with a mix.  Very few end up with employed staff only as a business model.

Entrepreneurs cite fear of employment law as one of their key concerns – yet few seem to realise some simple facts:

  1. Calling someone freelance or self employed does not mean they are (we might have thought of that one ourselves if it really worked!)
  2. Self employment does not mean no tax has to be deducted under IR35
  3. Employment tribunals can decide your people are really employed (and trigger claims from the revenue for back tax)
  4. Genuine freelance workers have a full range of discrimination and other employment rights (the main thing they don’t have is unfair dismissal rights)

It can be tempting to take on people as freelance workers and not have to worry about PAYE and tax at the end of the month, but it can mean that you are storing up trouble for the future.   Sometimes it can be better to pay the tax as you go and know you don’t owe the revenue anything later.

New employees have two years before they qualify for unfair dismissal rights, and for some people it can be less worry to take on staff if the work needs to be done regularly or on an ongoing basis.  You really should talk to your accountants about this and tell them honestly how you are working.

Even if freelance workers are the right model for you, you need a proper agreement that not only sets out the relationship so HMRC can see it is not an employment relationship but also deals with:

  1. Who owns copyright – the default is that they will if they are not an employee
  2. Confidentiality and data protection
  3. What happens about confidential information when the contract ends
  4. How they will deal with sending suitably qualified substitutes when they are not available……because if they can’t that may be one indicator that they are not self employed
  5. What equipment they are going to provide
    And there’s more……

There are lots of things the law gives you automatically if you are the boss of an employee that you are going to have to contract for if you are using freelance workers. We come across people who don’t have copyright in their own web sites, who don’t have access to social media followers they paid someone to find and worse.

Ultimately you are in business to get particular things done at a profit. Setting out proper arrangements to manage freelance workers (and staff) are part of the building blocks of that success. Join us for a free teleseminar to discuss managing freelance workers – register via this link.

Annabel Kaye is Managing Director of Irenicon Ltd, a specialist employment law consultancy.

Tel: 08452 303050 Fax: 08452 303060
You can follow Annabel on Twitter
www.irenicon.co.uk
www.koffeeklatch.co.uk
www.balancingthebump.com

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Filed under employment law, Freelance Workers

TUPE or not TUPE

. . . or The pangs of despised Love, the Law’s delay

For the last year or so I have been talking about TUPE on a regular basis, both in teleseminars and in person. So far, no employee engagement, talent management or onboarding specialist has turned up.

Is TUPE seen as a completely unrelated discipline or as a simple compliance exercise? This may be why so many of the questions I deal with are around “What do we have to do?” instead of “This is what we need to achieve…”

Consultation

The consultation elements of TUPE are key to success or failure. There are two employers – the current employer (transferor) and the future employer (transferee). The law treats the two for most purposes as if they are one employer, but not at this moment. The transferor has to give elected employee reps information about the transfer, and to state what measures it is proposing to take (sometimes known as a “measures statement”), and the ‘measures’ it expects the transferee to take. The transferor is required to consult the employee reps about its ‘measures’ – with a view to seeking employee agreement to them.

Misconceptions

Often that the transferor fails to organise TUPE reps, believing that there is a ’20 person’ threshold to this requirement. That threshold is a redundancy one – it does not apply to TUPE. There is no statutory timetable for TUPE consultation unless more than 20 employees are at risk of redundancy and the redundancy thresholds are triggered. It can be tricky to do a good consultation exercise in no time at all whatever the law says. Many HR departments think they have to consult only on proposed changes to contracts (most of which would be difficult under TUPE anyway) whereas the ‘measures statement’ should cover changes to the contractual terms (such as pension schemes so far as TUPE permits) but also to non contractual arrangements (e.g. discretionary sick pay and bonus schemes).

Measures

The transferee is required by TUPE to provide their ‘measures statement’ to the transferor in good time so that the transferor can pass it on to the employee reps. Sometimes the transferor will even allow the transferee access to staff to begin their own consultation process. But there is no requirement for the transferor to allow personal contact or meetings with staff prior to the transfer date. If the two parties are rival contractors (rather than a situation of client outsourcing), there can be little practical motivation for the outgoing employer to invest a lot of time in the consultation process for outgoing employees. Some employers simply make an announcement and say “your new employers will tell you everything when you turn up to work for them”.

Compliance is not much of a goal

The real problem for the transferee is not legal compliance, which can be fairly easily achieved in most circumstances. Difficulties arise because the incoming employees are bringing with them the whole psychological contract they had with their existing employer, along with their own personal set of misunderstandings about their contractual and legal entitlements, their expectations of how they should be treated, and their memories of how they were. They will be adding to that psychological contract how they are treated during this process – by the transferee and by their soon to be ex-employer, the transferor It’s a potent mix that can result in three way tribunal claims, disaffected employees and a lot of wasted time and effort.

If the transferee is “allowed in” prior to the transfer, the consultation process can be a wonderful way to start to understand these issues, and to arrange to bring those individuals into their new employment relationship with a better basis for working together. At any point consultation can also be the time when a mini ‘skills audit’ is done to see what training is needed to properly induct the new team members. It can be a ‘getting to know you’ process and a ‘checking we understand the data’ process. Alternatively, you can make this process into: ‘This is where we tell you what we want you to know, and you just listen and obey’.

The spirit of consultation is often overlooked in the rush to compliance, and many highly motivated and resourceful individuals start working for their new employer confused, angry and resentful. It is an extremely hard thing for some people to be sent to work for someone they have never met, never applied to work for or indeed wanted to work for. We need to recognise that, and build our processes accordingly. This is the first opportunity you have to show them how your ’employer brand’ really works – are you going to fail?

Annabel Kaye is Managing Director of Irenicon Ltd, a specialist employment law consultancy.

Tel: 08452 303050 Fax: 08452 303060
You can follow Annabel on Twitter
www.irenicon.co.uk
www.koffeeklatch.co.uk
www.balancingthebump.com

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Filed under employment law, TUPE

Guest blog – Does HMRC understand IR35? Do you? Does anyone?

This is the transcript of an interview between Robert Bradley of Bradley & Associates and Annabel Kaye of Irenicon. Robert’s firm is accredited by the Professional Contractors Group, and he regularly speaks on the subject of Tax Status and IR35.

Annabel:  One of things we find when working with entrepreneurs is that they think if someone is self employed they should pay their own tax and national insurance and that should be an end of it. The situation is more complicated than that since calling everyone self employed doesn’t mean they are and even if they are HMRC can make you deduct tax or charge you if you haven’t. The whole tax thing is about as clear as mud to most people. HMRC have recently updated their tests and guidance and I have asked Robert Bradley to try to help me understand who has to deduct tax and when.

Robert:  HMRC has struggled with enforcing clear rules around tax status, particularly in the construction industry and in the case of the one man consultant contractor who is potentially subject to the Intermediaries legislation, more commonly known as IR35. The latest new ‘Business Entity’ tests which have been introduced under IR35are an attempt to help businesses understand when they should be deducting tax from freelancers and when they shouldn’t. Whether this will really help in this process remains to be seen. To date they have not been well received.

Annabel:  I have been through the tests on the website with several clients to see what answers they get. While some are getting very clear indicators that they should be deducting tax under IR35, a lot are getting results in the ‘grey’ zone. If someone uses the tests and puts in honest data, are they in the clear if the tests say – don’t deduct tax?

Robert:  Well, as a specialist in this area, I think they have missed an opportunity to use existing cases and make them part of the online tests so that people can be fairly certain where they are if their situation matches one of the key cases. There is also no real understanding of how small businesses and start ups really work, so a lot of genuine one person businesses may come out of the tests as ‘not a business’ because they don’t need indemnity insurance, can’t create efficiencies internally, and don’t need to advertise or operate from premises. In the world of social media you may not have any paid advertising receipts and yet have a very successful business. Lots of real businesses are start up and run from home and the tests put too much emphasis on where people work, which in the modern online and virtual world is increasingly irrelevant.

Annabel:  We have seen a few new clients who have come to us when HMRC are saying these people are really employees. The problem is that at that point there is often a disputed liability for back tax – either under PAYE or IR35. Do you see these new tests as helping people avoid that problem?

Robert:  While I do see that we need to guard against abuses like having a job, leaving it, forming a personal services company and going back into that same job with a different tax structure, I think there are real problems with some of the other tests. For example how can someone provide substitutes if their skills are very specific?

Annabel:  We have looked at that element. The reality is with the right framework agreement that enables a substitute to be used (with the client’s consent) it is possible to get a substitute to do some of the work. It does not have to be all of it. For example, a high level IT specialist may still have some ‘hack’ work to do within a contract and can organise someone suitably qualified, with the client’s consent to do that. Sometimes that can be really good for the business and can lead to a serious look at whether the boss ought to be doing the grunt work – something that is often the turning point from ‘solopreneur’ to real entrepreneur with a team of associates and/or employees around them.

Robert:  I don’t think the new guidance will help many contractors have peace of mind about IR35.

HMRC are currently targeting IT contractors, so perhaps when a few cases have come to court and been settled we will have a clearer picture of how the new rules will determine the IR35 status of one man contractor companies. In the meantime, I will be updating my social media as updates are published.

Annabel:  We will continue to run our KoffeeKlatch seminars on managing freelance workers and to urge people to use a proper agreement and take proper advice on the tax status.

Thank you Robert, it’s clearly a very challenging area of taxation and I appreciate you taking time out to share your thoughts with us.

You can follow Robert Bradley on Twitter
He can be contacted by telephone on 01299 879140
Email : robert@bradleyandassocates.co.uk
Web : www.bradleyandassociates.co.uk

Annabel Kaye is Managing Director of Irenicon Ltd, a specialist employment law consultancy.
Tel: 08452 303050 Fax: 08452 303060
You can follow Annabel on Twitter
www.irenicon.co.uk
www.koffeeklatch.co.uk
www.balancingthebump.com

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Filed under employment law, Freelance Workers