Working Time Regulations

- a 'Freelance Informer' legal article from Roger Sinclair

'I work as a contractor. I do not have my own company, and the agency deducts tax under PAYE. They've terminated my 12-month contract early, and offered me a fresh contract for the same position, but with an 8% reduction in rate. They say this is because of the new Working Time Regulations.'

The EC Directive on Working Time was published some time ago. This is a Directive, addressed to all EC member states, requiring them each to introduce legislation to achieve the objectives set out in the Directive.

The UK government has dragged its heels in producing this legislation. It was only published a few weeks ago, and will come into force on 1^st October 1998. The Regulations are complicated, messy and confusing, and it can be difficult to see where their boundaries lie. Indeed, their full meaning may well not become completely clear until test cases have been before the courts.

The main focus of the regulations is on 'workers'; the regulations lay down certain minimum standards which employers are required to observe, in relation to maximum weekly working hours, length of night work, rest periods, and annual paid leave entitlements. The regulations contain a definition of 'workers' which goes beyond employees, and it seems to me that PAYE contractors supplied by agencies will be included within the regulations - even if the contract provides that the contractor is not an 'employee'. [There are some circumstances where contractors who work through their own limited companies may also be included by the regulations, where the agency has required the contractor to also personally sign the contract.]

The regulations give workers the right to paid annual leave. For a leave year beginning before 23^rd November 1998, the entitlement is three weeks; beginning after 23^rd November 1999, four weeks. For leave years beginning between those dates, the entitlement is proportional, rounded up to the nearest whole day.

For each week's paid leave, the worker is entitled to receive a 'week's pay'. In essence, a 'week's pay' is defined as the average pay per week during the preceding 12 weeks.

The worker is entitled to the higher of (1) the paid leave entitlement given by the regulations, and (2) any paid leave entitlement given by the contract.

The right to paid annual leave arises once the worker has been engaged for more than 13 weeks. This could be under one contract, or a succession of short contracts. The parties to the contract cannot contract out of the rights given by the regulations. The paid leave must be taken during the leave year in which it falls due, or it will be lost forever. Paid leave may not be replaced by payment in lieu, other than on termination.

So what does this mean to the contractor and to the agency? Contractors who work under PAYE will generally up to now have had no contractual paid leave entitlement. Therefore they will from 1^st October 1998 become entitled to the paid leave laid down by the regulations. This will eat into the agency's margin, in a way in which the agency had not predicted when the contract began.

In your case, the agency has the right to terminate the contract on 28 days notice. They have exercised that right, but have offered you a fresh contract on different terms to commence when the original contract terminates. You have to satisfy yourself that:

• The new contract shows a start date for the leave year;
• Your rights to paid leave accrue from day one (ie in case the contract is terminated before the end of the first 13 weeks);
• It states what your annual paid leave entitlement is, in terms of weeks - ideally, this should be 4 weeks (to avoid the necessity for the 'proportionate' calculation);
• It states what amount you are entitled to for each week of paid leave - ideally, the amount which you would earn in each standard week, excluding any non-compulsory overtime;
• The new lower rate applies only to the standard hours - any rate for overtime should be as before;
• On the basis of the terms of the new contract, you will still receive the same overall amount, taking into account the paid leave to which you will be entitled. (Do the arithmetic - if your entitlement is to 4 weeks paid leave at £x per week, then the overall reduction in your income as a result of the new reduced rate for 48 weeks should be no more than £4x);
• If the contract (including any extensions) lasts more than a year, be sure you actually take the paid leave during the year to which it relates - but see that there is an express contractual right to carry any untaken leave forward, in case you forget, or are unable to do so;

Finally, make sure that when the contract ends, you get payment in lieu for any untaken paid leave entitlement.

18^th September 1998

I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.

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© Roger Sinclair egos@cix. co.uk 1998 - All rights reserved - see full copyright details

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