PAYE Temporary Contractors payroll

truecockney Registered Posts: 94 Regular contributor ⭐
We have just had a scenario whereby a long-term temporary contractor (in their job longer than a year) has lost out on holiday pay, despite taken all time off. The scenario is...

Mr X starts work through an agency on 1 January and agrees to be paid on a PAYE basis. He takes his full holiday entitlement of the year (28 days) by the end of September:

- 2 weeks in April
- 2 weeks in July
- 2 long weekends in September

Obviously, as a temporary contractor, he had not accrued the holiday by the time that he taken all leave so did not get paid it all. But, as he has successfully completed one full year, it turns out that he has "sacrificied" 7 days holiday pay at 31 December, despite going on leave for the required length of time.

Would he be entitled to have that "sacrificed" 7 days paid to him at his anniversary date when it is evident he has taken the time off?


  • JodieR
    JodieR Registered Posts: 1,002 Beyond epic contributor 🧙‍♂️
    I think it sounds like it's unfair for him not to be paid full holiday pay. If he (and all other staff) had to wait until he'd accrued all his annual leave, then surely all of the staff would have to take the last week of december off - which does suit some industries and some staff nicely, but it seems unfair to enforce this on everyone. I've spoken to ACAS about similar situations before and they usually emphasise the point of whether the decision made was fair and reasonable or not, so based on what you've said I think that Mr X should fight for his holiday pay!
  • payrollpro
    payrollpro Registered Posts: 427 Dedicated contributor 🦉
    I am a bit puzzled with this one. You refer to him as a contractor so my first reaction is to say, well its his responsibility charge a rate which includes what he needs to fund his days off. That is what I do, though like most self employed I don't actually get much time off.

    Then you mentioned an agency and PAYE, but who is paying him? Whether it is the agency or the end user, whoever accounts for the PAYE, including the ERS NIC, is the employer and has to pay for time off up to 4.8 weeks for 2008/09 whether they like it or not. The requirement to work a year before being entitled to paid time off is for contractual entiltements only and can only apply to anything above the 4.8 weeks (5.6 weeks now).

    We have to remember that ER's NIC can only be paid by the employer, or a person taking the role of employer where it is an agency or office holder. As soon as this happens the person is employed for the purposes of the right to paid time off.

    Have you any other information which can help determine what the rights and wrongs of this are because my feeling is that this persons "employer" is in breach of the working time regulations and he ought to start a formal complaint for both this and unlawful deduction from pay.

    The last one applies because if the law says he should have been paid then receiving nothing is less than that which is correct and therefore a deduction has taken place. In tribunal terms this can be an unlawful deduction.

  • truecockney
    truecockney Registered Posts: 94 Regular contributor ⭐
    They are contracted out through an agency on a PAYE basis. And are referred to as contractors as they are typically employed on a very long term basis (anywhere up to 4 years in duration).

    As they are employed through an agency, they are not typically paid holidays in advance (if they haven't accrued the leave, they cannot take it as paid leave). But in this situation, at the end of their first year of work they have taken full leave (28 days) in the first 9 months of the year.


    - All leave has been paid as much as had been accrued when holiday was taken (21 days)
    - Built up on-record another 7 days leave, but not taken as paid (built up after September weekends)
    - But these 7 days had been taken (authorised) prior to them being accrued
    - Is not gauranteed to have this time taken off as he has used all entitled leave

    Of course, these are all just estimates, but the situation has the potential of coming up. Not everybody can take all their holiday at the very end of the year. Can the agency roll-back the accrued holiday to when they took holiday before the leave had been accrued?
  • payrollpro
    payrollpro Registered Posts: 427 Dedicated contributor 🦉
    It's an interesting one because the law gives each "employed" person a right to take paid time off during a 12 month period of, as you say, 28 days or 5.6 weeks if they are less than a 5 day week worker.

    In this case there is an "employer" for the purpose of the time off, the agency so everything is clear, but the regs do make it clear that a worker can only take time off they have accrued, so by the end of 6 months service they can take 14 days off and so on, but everyone accepts that there is flexibility in the whole process becuase the only time there is a problem is when their "employment" ends part way through the year, in which case they will have an entitlement, on a 365th basis, to check against the actual paid time off.

    If this happens they can be asked to pay back, if the contract says it can be done, the regs do not allow for that, any excess or they must be paid any shortfall and that is mandatory.

    The way to determine if there is an issue to be dealt with is to take the annual leave period, whatever that is and see how much leave this person took in the 12 months because the fact that he took leave which had not actually been accrued at the point of taking it will not be relevant if between then and the end of the leave year he took no further leave. All he has done in such circumstances is anticipate a bit and it would be rather unfair if he was penalised if within the whole leave year he is within his full enitltement.

    I also feel the agency is acting unlawfully if during the 12 months leave year, 1st January to 31st December, he was entitled to 28 days leave and was only paid for 21 days. As I mentioned I also feel he has a case to sue for unlawful deduction from pay even if the complaint of failing to meet the requirements of WTR would take precedence.

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