The Freelancer & Contractor Services Association (FCSA) has recently updated its Codes of Compliance to clarify the confusion surrounding umbrella companies and holiday pay and to strengthen compliance by its members. However, the recent updates have been scrutinised by industry stakeholders. Contractor UK said the “FCSA rubbed out words proposed for its new compliance code that would have prohibited umbrella companies from keeping unused contractor holiday pay, because a member made legal threats”. Keep reading because we have included a detailed statement from the FCSA’s CEO, Chris Bryce, in response to criticism received on the back of recent changes to Section A10 in the FCSA’s Codes of Compliance.
The FCSA has recently updated its Codes of Compliance to strengthen compliance amongst its members. However, the recent changes to Section A10 have caused quite the debate within the industry, with Contractor UK accusing the FCSA of watering down the wording to avoid legal threats from an FCSA member.
In a statement published on the FCSA’s website (Tuesday 5th July 2022), the FCSA’s CEO Chris Bryce explains the recent amendments to Section A10 of the FCSA’s Codes of Compliance. The statement reads:
“There’s an old saying that no good deed goes unpunished, and when updating the FCSA Codes of Compliance, we’ve definitely found ourselves between a rock and a hard place over holiday pay.
Given the recent controversy around workers not receiving holiday pay when they believed they were entitled to it, and umbrella companies allegedly keeping it for themselves, we set out to tighten up our guidelines to ensure this couldn’t happen moving forward.
As you may have read in my recent article for ContractorUK, this threw up some interesting challenges which have since sparked debate and a few misconceptions among our network. So allow me to set the record straight.
Initially we thought the solution to the ‘use it or lose it’ precedent was quite simple – the top-line assignment rate contains an element of money to cover holiday pay, therefore the worker should be entitled to receive that money even if they don’t take the holiday. In principle, this should be the way it works, and the FCSA wants it to be the way it works. But we quickly realised it wouldn’t be this clear cut, when our legal advisors said we might be running the risk of requiring members to act unlawfully.
Under the Working Time Regulations 1998 (WTR), an employee may only be paid in lieu of their holiday entitlement if they’ve accrued holiday outstanding on termination of their employment. It’s unlawful to pay an employee in lieu of their statutory holiday entitlement while their employment is continuing (see regulation 13(9), WTR).
The rationale behind this is that the WTR are effectively a piece of health and safety legislation; the purpose of allowing an employee to take paid holiday is to ensure they have a rest period away from work. So, if an employee receives a lump sum payment instead of taking their holiday, they forgo that period, which could be detrimental to their health.
What’s more, paying an employee in lieu of their statutory holiday entitlement while their employment is continuing isn’t just unlawful an unfortunate by-product of the regulations in rare cases, an employee can lose their holiday entitlement. This is true of all employers, but it gives rise to particular difficulties for umbrella providers.
So, you see the predicament. That’s why we decided to increase the amount of notice given before the end of the holiday year from four to eight weeks; it’s no good giving one month’s notice if someone has accrued six weeks’ leave and is unable to take it all. We’ve also tightened up the code to make sure workers know in advance how holiday will be calculated, what they’re required to do, the amount of holiday they’ve accrued, what will happen if they don’t take it, and that the umbrella regularly reminds the contractor to take holiday.
Beyond this, we’re advising workers to make full use of their holiday entitlement, and lobbying the government to introduce changes to the outdated WTR so that umbrella companies can make payments in lieu of unused holiday entitlements.
Of course, some members have taken the decision to do this anyway even though it’s technically unlawful and they could face an Employment Tribunal if challenged on it. The risk of that is obviously small, but nevertheless, it exists. The other workaround, which is proving somewhat popular as ethically right (though technically unlawful), is ‘advance’ or ‘rolled-up’ holiday pay, which, again, is down to the individual business to decide.
I hope this goes some way to dispelling some of the disinformation that we’ve seen surrounding this thorny issue, and gives you an idea of what FCSA wants to achieve together with the rest of the industry.”
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