Umbrella companies at risk over holiday pay ruling in Smith V Pimlico Plumbers

Umbrella companies are being warned they face retrospective and devastating claims, after a court ruled that workers’ rights to holiday pay ‘carry over and accumulate’ until they leave.

The Court of Appeal also said in Smith V Pimlico Plumbers that even when their contracts terminate, workers are “entitled to a payment in respect of the untaken [holiday] leave.”

And in what may be the final nail in the coffin, especially for umbrellas which have pocketed holiday pay, the CoA said the right to holiday pay only ever lapses if three high bars are met.

'Encouraged, informed'

So first, employers like umbrella companies must show they “specifically and transparently” gave the worker the opportunity to take the paid annual leave within the holiday year.

Second, that they also “encouraged” the worker to take the paid annual leave and third, that they “informed” the worker that the right would expire “at the end of the leave year.”

With these new, narrow circumstances for when holiday pay needn’t be paid, and the finding it accumulates, plus is payable upon termination, the viability of brollies looks in doubt.

'Some brollies will fold'

“It’s possible some will go out of business as a result,” warns James Poyser, CEO of inniAccounts, referring to umbrellas that rely on holiday pay to keep afloat.

Robert Sharp, who runs umbrella company Orca Pay Group echoed: “I believe [this] will be the end for a good few.”

He continued: “The retrospective claims that will now be hitting many umbrella companies who have historically and deliberately misguided contractors out of their holiday pay is going to have a huge impact.

“In short, if umbrella companies haven't worked their arses off to ensure you take your holiday, then this carries over into the following year until termination of your contract. [Like I said that’s], huge.”

'Make workers aware on holiday pay'

A more formal reading of the ruling, which was approved by three appeal court judges, came from Rebecca Seeley Harris.

A tax lawyer at ReLegal Consulting, Ms Seeley Harris said: “Technically, this judgment means that any worker - be they self-employed, a gig worker, an umbrella worker - has the entitlement to paid annual leave but that the employer has to ensure that they are made aware of this.

“If they don’t, the worker does not lose the entitlement at the end of the year, it begins to accumulate.

“Also, it is likely that anyone who has recently finished a contract could make a claim -- within three months of the end date, if they think they have been short-changed.”

'Imperative contractors act before March's end'

But is the advice from Mr Sharp who took to LinkedIn which is even more pressing -- and for a greater number of umbrella contractors.

“If you are a contractor, it is imperative that you act before the end of March if your holiday calendar was January-to-December,” he posted.

“For any contractor that is looking for some advice or believes that they may not have received the holiday pay their entitled to, [connect with] me and I would be happy to help ensure that you get what you are entitled to.”

'Duped'

Yet Julia Kermode of IWORK cautions that while it “should help” umbrella staff “duped” on holiday pay, the Smith V Pimlico Plumbers ruling is “not necessarily binding in other cases.”

She envisions a more subtle effect, whereby umbrellas -- from now on -- feel compelled into making certain they are transparently telling workers that they risk losing holiday pay.

Orca Pay Group’s Mr Sharp reflected: “Finally, a ruling that really shifts the power to the contractor, which is where it should always be -- it's always been your money.

“I bet the bean-counters at many umbrellas are now rightly sweating profusely. Be prepared for NDAs, settlement offers which are below the full amounts and other desperation tactics.”

'Real threat to umbrella companies' viability'

And also be prepared for some umbrella bosses simply taking contractors’ money and running according to offpayroll.org, an umbrella company review website run by Mr Poyser.

He explained: “[This judgment is] a real threat to the viability of many umbrella companies.

“The holiday they've pocketed has already gone back up the supply chain, and there's no way of getting it back. I'll put money on more umbrella company owners emptying the bank account and running”.