A ruling made against a Pimlico Plumbers worker’s status has highlighted that employers may be incorrectly classifying staff to avoid their workplace benefit duties.

In a ruling made by the Supreme Court today, 13 May 2018, plumbing and heating engineer Gary Smith was successful in his case against Pimlico Plumbers regarding his status as a worker rather than a self-employed contractor.

The Supreme Court ruled that under the Employment Rights Act 1996, Smith is a worker and therefore eligible for employment rights that he was formerly refused under the self-employed bracket.

This ruling could have considerable implications on other employers who may be avoiding their workplace benefits duties to protect their balance sheet, it has been said.

Old Mutual Wealth head of retirement policy Jon Greer highlighted: “The grey area of employment categories has meant that businesses can get huge cost savings by building a staff of self-employed people. These people are taxed more lightly and businesses do not need to provide them with benefits like pensions, paid sick leave, and insurance.”

Greer noted that with employer duties including auto-enrolment, benefits are likely to affect company balance sheets and therefore may encourage them to rethink business models.

“When it comes to auto-enrolment, the company will have to pay a minimum two percent employer contribution for an employee. On top of this there will be administrative costs. According to The Pensions Regulator, smaller employers can spend substantial fees for processing of up to £42 per employee per month,” Greer said.

Also commenting on the judgement, Royal London director of policy Steve Webb added: “This is a hugely welcome decision. If these plumbers gain the same rights as other workers, this will greatly improve their chances of having a decent standard of living in retirement.”

Greer added that recent statistics have brought light to the fact that almost half, 45 per cent, of self-employed people aged between 35 and 54 have no private pension at all.

“This judgement and the Treasury’s crackdown on “bogus self-employment” may reduce that percentage substantially. This will clear a path to get a better picture of the savings strategy of the truly self-employed, and what savings mechanisms suit them best,” he concluded.

Webb agreed that government intervention is necessary to permit similar cases from occurring. “We can no longer rely on one-off court judgments like this. We urgently need the government to make sure that workers get full pension rights which cannot be avoided by classifying them as self-employed.”

Aegon pensions director Steven Cameron added: “It remains to be seen how widespread the ramifications of the Supreme Court ruling in the Pimlico plumber case will be for those employed in the gig economy. But it does suggest that those on longer term ‘self-employed’ contracts could acquire a new range of worker benefits. This comes at a time when the government is grappling with how to plug the growing gap in pension provision for the self-employed, who unlike employees don’t benefit from being automatically enrolled into a workplace pension. As the government considers what rights long term ‘self-employed’ contractors should acquire, a workplace pension should be high up their list.”

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