Self Employment – Can I avoid holiday pay in my Childcare setting by paying people as per their invoice?

The issue of self employment has been much written about by this HR Consultancy and most HR Consultancies in the last 5 years. We have seen many cases through the courts determining what defines a self employed relationship (Uber, Pimlico Plumbers, Auto Clenz etc). We have also had the IR35 regulations introduced after a delay due to the Coronavirus pandemic.

Given the news on 20th July 2022 that all employers would be paying their part year employees at least 5.6 weeks including bank and public holidays in each holiday year regardless of how many weeks they have worked, several people have suggested that self employed individuals may be a worthwhile strategy to pursue.

Now we see a number of issues with this idea.

1. Will they be genuinely self employed? More often than not the person you believe is self employed is actually a worker and therefore entitled to holiday pay the same as an employee. There is a useful online Government checker you can use to see whether the HMRC would consider the person self employed here.
2. Will they have the required insurances? Many self employed individuals are not set up as Limited Companies or Sole Traders and will not have made sure they have public liability and/or professional indemnity insurance in place in order to be insured in their own right.
3. Who will be responsible for tax and national insurance? If they are found to not be genuninely self employer who will be paying the unpaid tax and NI – warning it could be you!
4. What about training? Will you pay for them to be trained or will they pay for their own training and provide you with the certificates? If so how will you quality assure?
5. What happens if they can’t attend the work, a genuine self employed contractor will be able to substitute themselves (and not just in wording in a contract), if you contract them so that you don’t allow that, they are probably not self employed.
6. You will want them to be on the DBS Update Service and for the Enhanced Disclosure they hold to be for the relevant lists i.e. children and not vulnerable adults.
7. We don’t take employment references for self employed contractors, we might take copies of qualifications, and see testimonials but you wouldn’t normally receive references. How does this fit with Safer Recruitment approaches.

Here’s some useful guidance from the Government’s website about what counts as self employment;

Someone is probably self-employed if they’re self-employed for tax purposes and most of the following are true:

• they put in bids or give quotes to get work
• they’re not under direct supervision when working
• they submit invoices for the work they’ve done
• they’re responsible for paying their own National Insurance and tax
• they do not get holiday or sick pay when they’re not working
• they operate under a contract (sometimes known as a ‘contract for services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor’

As you can see there are a number of issues that need to be resolved before using self employed people is the answer to the impact of holidays on the childcare sector.

There will be individuals who provide a service to several businesses, who are set up as self employed contractors and may be keen to provide you with a service. This may include nannies, au pairs and early years trainers.

Our advice will be to consider it before you say yes and do your due diligence as the impact of getting it wrong would be far higher than the holiday pay you might pay someone who is on a fixed term contract, or casual agreement.

If you have any questions regarding managing holiday in your childcare setting please call us on 01527 909436.