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Hermes case ‘highlights need for organisations to review employment status'

News of an HMRC investigation into pay rates for courier company Hermes’ delivery drivers has shone a spotlight on the grey area surrounding employment status and minimum wages – and highlighted the need for organisations to carefully review their practices, according to employment lawyers.  

The company is facing an investigation into allegations that it pays drivers less than the national living wage by classifying them as self-employed rather than employees.

It has also been claimed that drivers do not receive benefits such as a holiday allowance or sick pay, and risk losing their jobs if they are unable to come to work for any reason.

The allegations echo recent media coverage of delivery company Deliveroo, and a case involving a number of cycle courier businesses that is expected to be heard at an employment tribunal shortly. But HMRC’s intervention in the issue of self-employment has been seen as particularly significant.

Hermes said it was “confident in the legality of our self-employed courier model” and would “cooperate fully with any investigation, should there be one”. But the case serves to highlight the growing challenge for the government in investigating organisations that have classified individuals as self-employed, given the uncertainty over this area of the law, and the fact a number of test cases are currently awaiting judgment.

Paul McFarlane, partner for employment, pensions and immigration at Weightmans, said there was now a “myriad” of arrangements available when looking to offer an individual work, and many were an uncomfortable fit with established employment protections.

“Getting employment status wrong can be expensive. For example, if an organisation miscategorises someone as self-employed, when in reality they are a worker or employee, it could face significant tax liabilities, penalties – including possible criminal sanctions – for failing to comply with auto-enrolment obligations and a wide range of employment tribunal claims, including claims for unpaid holiday pay and minimum wage,” he said.

McFarlane said employment status was an increasingly contentious matter, and it was likely to become one of the most prevalent employment law issues of the next decade.

“Organisations of all sizes can expect to have their employment practices scrutinised if they appear, even inadvertently, to be unfairly passing business costs and risk onto their staff,” he added, emphasising the need for employers to carefully review the arrangements they have in place.

“Many organisations utilise contractors and other workers, without treating them as employees,” he said. “Although many of those arrangements are entirely appropriate, it now appears that HMRC will be scrutinising some of these arrangements far more carefully.”

He said employers that are unsure about the status of their workers or employees should ensure they are “afforded the rights they would have if they were employees, and follow a full and fair process when ending engagements”.

The investigation into Hermes coincides with a separate announcement from HMRC that it would scrutinise employment arrangements relating to freelance workers who were being used to fill what would otherwise have been permanent roles.  

Crowley Woodford, employment partner at Ashurst, said employment status had long been a legal grey area. He said: “The government’s initiative will force some employers to re-evaluate their business model, or run the risk of some serious financial exposure to both HMRC and in the employment tribunal.”

Added: 25-10-2016

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