Reply to: For a friend - Been forced Permie to Contractor

[Tomo1971]

Are they being forced to go contracting to get their jobs back or is their role gone but the agent can place them as knowledge of the client is useful? My last client had a habit of making people redundant only for them to appear again contracting 3 months later after a cool down period.

As far as I am aware, the former. The company involved (quite a large household name as it happens, or at least a small division of them) has work coming up with one of its clients, so absolutely so reason to make the positions redundant. Ive heard from someone else that one of the reasons for the change is that the PAYE guys were, due to a very weird pay structure been paid more hours than they actually worked and this equated to £80k for some guys. As a contractor, with no van, fuel, accommodation, pension etc supplied they stand to save some money.

And why can't your friends pot for themselves? It's their risk after all.

I originally posted as I wasn't fully sure of the implications, so wanted some ball park advice before advising him that what they are doing is wrong in HMRC's eyes as well as morally.

Ive made him aware of this thread and obviously the advice already given, up to him if he wants to take things further.

Thanks :-)

[Taita]

The P45 would show an amount of earnings which hadn't been subject to tax and then the same employee would show up again in the firm's PAYE records - unless it was a regular occurrence I can't see that it would be likely that there would be a problem though

RTI creates a myriad of red flag opportunities with automatic anomaly checks including (amongst a million other things) events occurring shortly after redundancy payments. People who usually operate honestly within the system are soft targets for HMRC the moment they appear to have crossed any line!

[SueEllen]

Are they being forced to go contracting to get their jobs back or is their role gone but the agent can place them as knowledge of the client is useful? My last client had a habit of making people redundant only for them to appear again contracting 3 months later after a cool down period.

Short cooling off period.

Other people I know have had to have more than a year even if there was nothing dodgy going on.

[LisaContractorUmbrella]

Without someone shopping them to HMRC and HMRC acting on that, how would HMRC know that this is what they are doing?

If the company was ever investigated, then they would have something to argue, but I can't see how HMRC would know the ins and outs of the company.

The P45 would show an amount of earnings which hadn't been subject to tax and then the same employee would show up again in the firm's PAYE records - unless it was a regular occurrence I can't see that it would be likely that there would be a problem though

[TheFaQQer]

I think the only risk would be attracting the attention of our friends at HMRC - if the company were making lots of staff redundant and then hiring all back a week later at the same salary but though an agency (to avoid EEr's NIC's) then HMRC could consider it to be a sham arrangement and start demanding money from all involved.

Without someone shopping them to HMRC and HMRC acting on that, how would HMRC know that this is what they are doing?

If the company was ever investigated, then they would have something to argue, but I can't see how HMRC would know the ins and outs of the company.

[northernladuk]

Ahh, this is another gotcha.

If you get made redundant and paid off then the first £30k is tax free, but I think there may be some restriction on this if you go back to the client within a certain time frame so be doubly careful!

Yep. Quite often there was a delay before a contractor could start because they were still in their cooling down period. It was utterly ridiculous.

[GillsMan]

To me, this seems pretty bad from a data protection point of view, although I guess the calls from the agency were to the permies work phones.

Thoughts?

Minor point, but the Data Protection Act covers personal information - work phones and work email address aren't covered.

[LisaContractorUmbrella]

Why would employing via an agency reduce EEr's NIC's. Surely the agency will have to pay them and the company will have to cover those agency's costs..

Yes you would think but it often doesn't happen like that - we've had loads of people come to us following the changes for CIS workers and their rates haven't changed despite the fact they are now liable for class 1 NIC's rather than class 2 and 4. In this case the agency could refer them to a brolly thereby passing on the liability for NIC's and employment rights but without the client necessarily having to pay out much more than they were before

[eek]

I think the only risk would be attracting the attention of our friends at HMRC - if the company were making lots of staff redundant and then hiring all back a week later at the same salary but though an agency (to avoid EEr's NIC's) then HMRC could consider it to be a sham arrangement and start demanding money from all involved.

Why would employing via an agency reduce EEr's NIC's. Surely the agency will have to pay them and the company will have to cover those agency's costs..

[LisaContractorUmbrella]

Ahh, this is another gotcha.

If you get made redundant and paid off then the first £30k is tax free, but I think there may be some restriction on this if you go back to the client within a certain time frame so be doubly careful!

I think the only risk would be attracting the attention of our friends at HMRC - if the company were making lots of staff redundant and then hiring all back a week later at the same salary but though an agency (to avoid EEr's NIC's) then HMRC could consider it to be a sham arrangement and start demanding money from all involved.

[Wanderer]

My last client had a habit of making people redundant only for them to appear again contracting 3 months later after a cool down period.

Ahh, this is another gotcha.

If you get made redundant and paid off then the first £30k is tax free, but I think there may be some restriction on this if you go back to the client within a certain time frame so be doubly careful!

[northernladuk]

And why can't your friends pot for themselves? It's their risk after all.

[northernladuk]

Are they being forced to go contracting to get their jobs back or is their role gone but the agent can place them as knowledge of the client is useful? My last client had a habit of making people redundant only for them to appear again contracting 3 months later after a cool down period.

[Wanderer]

Yes they are IR35 caught. In addition if it's in the UK it breaches employment law.

SueEllen is right - they would be IR35 caught and there is also the question of the termination of the permie contract. I recommend legal advice from an employment lawyer on this.

They can come back as a contractor but they will need to trade as IR35 caught so they will pay a lot more tax than they did as a permie so make sure there is a substantial payrise in it.

We tend to suggest a rule of thumb that the hourly rate should be annual salary / 1000. So a £40,000 salary would mean £40/hour as a contractor. It sounds high on the face of it but since the contractor has to cover all the employment benefits that they no longer get, it's actually a reasonable rate. Any less than that and they are taking the piss.

[eek]

Yes they are IR35 caught. In addition if it's in the UK it breaches employment law.

If a couple of them are prepared to back each other up they should go and see an employment lawyer. They could get a nice payout from the company if they rattle them.

Also I wouldn't go back and work for a company that got rid of me as an permanent employee and broke the law as it's obvious how they like to treat people.

+2. As Malvolio states something dodgy is going on here...