Allegations of JSA withholding contractor holiday pay surfaced in December 2020, but was there any truth to them?
To find out, our Chief Legal Officer, Martyn Valentine investigated:
The Allegation: JSA, an umbrella company providing contractor accountancy and payment solutions, withheld and more importantly, kept, the holiday pay of one of their contractors.
Who Are JSA?
This organisation now renamed Workwell, promises to give contractors all the benefits of working for themselves without the worry of compliance and tax.
Furthermore, they also say on their website that they offer everything for IR35 Assessment helping contractors to maximise their pay. The allegation was specifically that as JSA Group, the umbrella company withheld a total of £2,865 from one contractor – no small amount. No matter the total earnings of a contractor, this is a significant sum of money to lose. From a company that say publicly that they help contractors optimise pay, this seems at odds with their public persona.
What JSA Say About Withholding Contractor Holiday Pay
It is unsurprising that in this case JSA maintain there is no truth in the allegations of wrongdoing. Their reputation very much relies on this being true. If they have been taking what belongs to contractors, then they will soon lose the trust of their target group. They explain that they offer contractors two choices relating to holiday pay when they begin work.
Firstly, they can accrue their holiday pay to draw down on when they take their holiday entitlement. Alternatively, the other option which most choose, is to have it paid directly each time they receive pay, in advance. For those who do choose accrual, their current entitlement is displayed on every payslip. They insist there are reminders to take it in the appropriate holiday year. Here is the issue though, it creates a “use it or lose it” situation.
It transpires that there is indeed a loophole of this nature. The Freelancer & Contractor Services Association (FCSA) have since promised to review and fix what they have called ‘woolly wording’ in their member code. It seems to be this that led to their co-founder JSA being able to keep this sum from the contractor.
The FSCA have an ongoing investigation into this action. They also claim to have already closed the potential holiday pay gap in their code. A question remaining is just how many contractors does it actually affect? Surely it cannot be just one, and how will they rectify things? Finally, are they the only organisation to find a way to ‘legally’ do this?
Of course, JSA continue to protest innocence of wrongdoing, but the evidence of fact is clear to see. The contractor did not take their holiday entitlement at the appropriate time and JSA withholding contractor holiday pay and keeping it happened. Just because something is not illegal, does not mean it is right or fair.
Hopefully measures now set out will avoid this kind of dubious practice in the future. One thing is clear though, contractors need to be careful about their terms and conditions. Reading through the information businesses supply and ensuring they fully understand it, is a must. Whether relying on their own knowledge or getting some expert advice, this is a good step for all contractors to take.
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Treasury Minister Responds to Peers Critical Report of IR35
It began with the National Audit Office putting out a report commenting on the April 2021 IR35 off-payroll rules. They found evidence of ‘rushed legislation’ leading to inaccuracies caused by HMRC. One serious implication of this legislation is evidence suggesting HMRC now collect more tax from contractors than is actually due.
When non-compliance is addressed by HMRC and corrected, they can end up taking an increased amount of tax. The HMRC response to these comments state that they are glad the report highlights that they are making the tax system fairer with an increase in compliance. Yet this comes at a price to contractors.
Add to this the general feeling in medium and large businesses who now have the onus for deciding IR35 status. This is namely that IR35 is a burden and there are many examples of wrong decisions being taken. Peers have recently had their say on this, backing up the criticisms seen in the National Audit Office report. They particularly highlight in this report that the government is slow to act to criticisms and issues.
One example is around the harm caused by non-compliant umbrella companies, which may be disproportionately affecting those on low incomes. They are more likely to believe in the benefits of avoiding IR35 by unscrupulous firms who act unlawfully. The Lords had been involved in the consultations about the April 2021 changes before the new rules came in giving many suggestions. Yet their comments were not acted upon.
So, to the response to this by Lucy Frazer, Financial Secretary to the Treasury. Her comeback came eventually, but only on the reply deadline day. Her response focuses on how the government are listening and learning from comments. She also tackles some of the biggest criticisms the Lords gave. For example, one of these relates to the HMRC tool CEST which determines IR35 status. It is used by many small and large businesses for this purpose.
Yet, it is not able to give an answer in a fifth of scenarios input into the system. This leaves those relying solely on the tool with the difficulty of what to do in those cases. Lucy Frazer’s comments focus on its ease of use. However, this is only a benefit if it is possible to trust the tool. If you cannot in a fifth of cases, then she seems to be rather overlooking the issue.
For other concerns such as ‘zero rights employment’ when someone works inside IR35, people must wait for potential changes to come. The Lords warns of the many tax avoidance schemes appearing. There is similarly no deadline date for industry regulation in this area. Her comments continued in this way – a lack of acceptance of some issues and vague future promises on others.
Therefore, her comments are not particularly helpful or informative. In fact, it seems like there is only a response at all as it was a requirement. This perhaps explains why it avoids addressing so many of the issues. Seemingly the Lords, and contractors themselves, will have to continue to just wait and see whether anything changes for the better.