Reply to: ClientCo's own 2-year rule

[swamp]

I can't imagine wanting to stay anywhere beyond 12 months as a contractor?!

What happens if it's a two or three year project?

What about places that don't employ IT permies?

[Earlyflash]

WHS. I think it is also maybe good business practice not to use contractors for any length of time - we have a purpose and we should have a shelf life with clients, too. I can't imagine wanting to stay anywhere beyond 12 months as a contractor?!

Generally I agree, but I know of people who've been with a single company for many years, but come and go on different projects as required. Doesn't strike me that there is anything wrong with that. In fact, you could argue that taking advantage of your prior business and reputation is good Business Sense.

[Hex]

A bloke who works with me had an electrician rewiring his house. After doing 1 day the electrician rang up to say he won't be back for 3 weeks as he's broken his foot playing football. No suggestion that he might send a substitute. He almost certainly has the right to, but I bet in a lot of real world situations it doesn't happen.

[interested]

You don't need to. A permie has no contractual right to send a substitute, you have. Therefore you are not a permie. Established case law say so.

And actually D&C is the most important test, since control is a clear pointer to a master/servant employee relationship.

Substitution was a key test in James vs Greenwich Council which went to the Court of Appeal in 2008; as such it's one of the key tests established in case law.

My point is not that you have the right to substitution, it is that if a contractor is ill or cannot work it's very unlikely that they can genuinely provide a suitably qualified substitute within a short time frame that will have no impact on work delivered at ClientCo.

If a contractor fails this substitution test (nothing to do with merely having the right to it) then they are more likely to be deemed as a disguised employee.

[Fred Bloggs]

WHS. I think it is also maybe good business practice not to use contractors for any length of time - we have a purpose and we should have a shelf life with clients, too. I can't imagine wanting to stay anywhere beyond 12 months as a contractor?!

I'd agree with you on the 12 months except right now, with zip all on offer out there, here I am after 13 months hoping that within the next two weeks I get a 12 month roll over contract. Sad, but needs must.

[malvolio]

MOO and substitution are the key tests and who can genuinely say that they could get a substitute at very short notice without disruption to ClientCo work?

You don't need to. A permie has no contractual right to send a substitute, you have. Therefore you are not a permie. Established case law say so.

And actually D&C is the most important test, since control is a clear pointer to a master/servant employee relationship.

[Not So Wise]

As others have said it's due to HR departments confusion over temps and contractors and from HR's point of view it's a reasonable one because from their narrow point of view there is little difference between the two on a day to day basis, they have a body they pay an agency for, little else, that there is another company between the worker and the agency is "invisible" to hem

But things like this don't affect me anyway, had a personal 2 year rule since the day I started contracting, anything more than that and I would start to feel like a disguised employee…which would cause me to start to contemplate hara-kiri

[MaryPoppins]

These policies are implemented as a result of advice given by law firms on co-employment risk. I have also attended seminars with Tax consultants at E&Y which confirmed this view.

Should HMRC investigate ClientCo (and they do, often) and decide that you are in fact a disguised employee (which let's face it, a large proportion of contractors are) on the basis of the tests they employ - ClientCo can be held liable for retrospective employers NI and PAYE on a grossed up basis for 7 years.

So - it's not complete nonsense at all. If you have a manager who is able to side-step policy then you're OK; if not, you're out.

To Moscow Mule's point - the tests that HMRC use (that are essentially defined by case law) would not conclude that an employee of another organisation such as Accenture is a disguised employee of ClientCo.

FYI the tests are:

1) Contract status - is it a contract of services?
2) MOO
3) Control (master/servant)
4) Integration into workforce
5) Individual on business in their own account.
6) Substitution

HTH

WHS. I think it is also maybe good business practice not to use contractors for any length of time - we have a purpose and we should have a shelf life with clients, too. I can't imagine wanting to stay anywhere beyond 12 months as a contractor?!

[interested]

I'm glad I don't use E&Y then (having said that they are pretty good so there may be some misinterpretation of what they said going on).

It is incredibly difficult for a contractor [via a limited] ever to be found an actual employee of client co. There have been cases when people have tried and failed. However, there has been one sucess. This relied on a VERY specific set of circumstance involing Tupe, C & W and a takeover.

The case you make though is entirely accurate where the contractor is a sole trader. The status tests determine if an individual supplying services directly to the client is an actual employee or self employed.

Agree to an extent but I'd say the likelihood of a contractor being found to be a disguised employee is pretty slim because it suits the contractor and ClientCo not to rock the boat (most previous cases have arisen because of a grievance that the contractor had with ClientCo)but in theory if HMRC did investigate a whole bunch of contractors I'd estimate a good 60-70% would fail the tests and be classed as disguised employees.

MOO and substitution are the key tests and who can genuinely say that they could get a substitute at very short notice without disruption to ClientCo work?

One of the E&Y tax partners at the seminar I went to used to work for HMRC and he said the policy of HMRC was 'they don't care if they cause collateral damage - they are going after contractors who 'avoid' tax'

[BoredBloke]

I had an 18 month contract at a large Pharm Co a few years ago. They brought in an 11 month rule and binned quite a few good people who were over the 11 months. It was quietly forgotten about shortly afterwards but sadly, that didn't help those unfortunates who had already been canned. Sad really, but that's what happens when you get draconian but badly drafted, legislation on the statute books.

I know GSK had an 18 month rule because that is why I had to leave and Astra Zeneca had an 11 month one

[ASB]

These policies are implemented as a result of advice given by law firms on co-employment risk. I have also attended seminars with Tax consultants at E&Y which confirmed this view.

Should HMRC investigate ClientCo (and they do, often) and decide that you are in fact a disguised employee (which let's face it, a large proportion of contractors are) on the basis of the tests they employ - ClientCo can be held liable for retrospective employers NI and PAYE on a grossed up basis for 7 years.

So - it's not complete nonsense at all. If you have a manager who is able to side-step policy then you're OK; if not, you're out.

To Moscow Mule's point - the tests that HMRC use (that are essentially defined by case law) would not conclude that an employee of another organisation such as Accenture is a disguised employee of ClientCo.

FYI the tests are:

1) Contract status - is it a contract of services?
2) MOO
3) Control (master/servant)
4) Integration into workforce
5) Individual on business in their own account.
6) Substitution

HTH

I'm glad I don't use E&Y then (having said that they are pretty good so there may be some misinterpretation of what they said going on).

It is incredibly difficult for a contractor [via a limited] ever to be found an actual employee of client co. There have been cases when people have tried and failed. However, there has been one sucess. This relied on a VERY specific set of circumstance involing Tupe, C & W and a takeover.

The case you make though is entirely accurate where the contractor is a sole trader. The status tests determine if an individual supplying services directly to the client is an actual employee or self employed.

[Bumfluff]

My current client operates the 2 year max rule on contractors and this was in place before the change is legislation. By the end of this renewal I hit the 2 year max, personally it doesn't bother me 2 years at any one client for me is more than enough, and IMO greater than 2 years smells of permy. I know RBOS doesn't care though when I was there some contractors had been there for between 5 and 8 years !!

[Hex]

There are a couple of banks in the city that operate rules. Deutsche bank have a 9M rule. JP Morgan have 2Y/3Y/10Y rules!

Merrill Lynch have an 18 month rule (although they seem quite willing to bend it).

[interested]

These policies are implemented as a result of advice given by law firms on co-employment risk. I have also attended seminars with Tax consultants at E&Y which confirmed this view.

Should HMRC investigate ClientCo (and they do, often) and decide that you are in fact a disguised employee (which let's face it, a large proportion of contractors are) on the basis of the tests they employ - ClientCo can be held liable for retrospective employers NI and PAYE on a grossed up basis for 7 years.

So - it's not complete nonsense at all. If you have a manager who is able to side-step policy then you're OK; if not, you're out.

To Moscow Mule's point - the tests that HMRC use (that are essentially defined by case law) would not conclude that an employee of another organisation such as Accenture is a disguised employee of ClientCo.

FYI the tests are:

1) Contract status - is it a contract of services?
2) MOO
3) Control (master/servant)
4) Integration into workforce
5) Individual on business in their own account.
6) Substitution

HTH

[BrilloPad]

There are a couple of banks in the city that operate rules. Deutsche bank have a 9M rule. JP Morgan have 2Y/3Y/10Y rules!