Personal service companies 'excluded' from holiday pay ruling
Personal Service Companies are likely to be excluded from a recent court ruling that found contractors’ holiday rights to be protected under European Law, according to legal experts. However, they add the exclusion could make the companies more attractive to agencies.
The European Court of Justice ruling, which now entitles freelance workers to four weeks' annual paid holiday, found the Government had broken the law by denying short-term contractors the rights through its Working Time Directive.
Before the ruling freelancers and contractors were unable to claim paid annual leave until they had worked for the same employer for 13 consecutive weeks.
Tony Askham, Head of Litigation at regional law firm Bond Pearce, who acted for the PCG in the Judicial Review of IR35, explains:
"Where a consultant contracts through a limited company they are normally an employee of the limited company. It is therefore their limited company who will be responsible for paying for holiday under the Working Time Regulations. Therefore the ruling of the European Court of Justice will have little practical effect."
However, employment agencies will be significantly affected, which may in fact benefit limited company consultants. Clive Dobbin, solicitor at Bond Pearce and expert in IR35 and employment status issues explains:
"As a result of specific provisions dealing with agencies under the Working Time Regulations temporary workers who do not contract through limited companies are generally treated for the purposes of the Working Time Regulations as employees of the agency. The ruling will therefore impose a significant burden on agencies in relation to these temporary workers.
"However for consultants who contract through limited companies, it will continue to be the limited company who is responsible for paying and administering holiday pay. Limited company consultants are therefore likely to become more attractive to agencies as a result of this ruling."
Both the Confederation of British Industry (CBI) and the British Chambers of Commerce (BCC) have expressed disappointment at the court's decision, saying it places businesses in a difficult and unreasonable position.
Susan Anderson, the CBI's director of human resources policy commented, "Employers who employ people on short contracts of three or four weeks will want staff available to work the whole duration of the contract. Planning for holidays will cause disruption and inconvenience."
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Richard Powell, UKTECH