Roger Mason of Back Office Umbrella Company turned his back on the industry in October 2013 after a ruling at a Birmingham Employment Tribunal. His previous company, Paymaster Ltd, was found not to be employer to the workers who used the scheme partly because it was the recruitment agencies who worked with Paymaster that provided assignment schedules and not the umbrella company. The employment status of workers using an umbrella company is fundamental to the business model.
A Contract of Employment must be in place and it must give continuity of employment. The legal precedent used by HMRC to distinguish between a ‘contract of service’ (employment) and a ‘contract for services’ is that of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance. The matter was referred to the High Court on appeal and the Judge in the case, MacKenna J, stated that there were three issues that needed to be considered when deciding whether an individual is working under a contract of service:
· The servant (worker) agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master (employer).
· He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master
· The other provisions of the contract are consistent with it being a contract of service.
In the Paymaster case, the tribunal judge said that the second criteria for determining whether or not the worker was an employee had not been fulfilled. An umbrella company should send each of their employees an assignment schedule for each new assignment that they begin, including extensions. This should give details of the client, work location, start dates and end dates, job specifications, training requirements, maximum and minimum working hours and assignment rate. In the Paymaster case this information came from the recruitment agencies which also had input into the way the umbrella company processed holiday pay.
The agencies also gave the workers no choice in working with Paymaster which was also considered to be indicative of control on the part of the agencies rather than the umbrella company. Had the tribunal considered that a contract of employment was in place they would then have probably considered whether it was over-arching. A worker who engages with an umbrella company will work on a series of assignments which would be considered to be permanent workplaces without an overarching contract to give continuity to the employment. If an umbrella company is found not to be operating an overarching contract their workers would have no entitlement to tax relief on costs for travel and subsistence. In order for a contract to be overarching it has to have mutuality of obligation in the gaps between assignments and that must be in the form of payment. It is not enough for an umbrella company just to guarantee a minimum number of hours work; there must be mutual obligations and there must be a sufficient degree of control exercised by the umbrella company.
Unfortunately Paymaster failed to comply with these requirements and the workers were left out of pocket.