A freelance social worker has been awarded nearly £37,000 (£36,826.65) in an employment tribunal after a recruitment agency was found to have made unlawful deductions from her pay.

The case, involving Michelle Appiah, highlights ongoing issues with employment status and compliance, raising questions about the complexities of current legislation.

Michelle Appiah, an independent social worker, had previously worked with the Home Office under terms that classified her as self-employed and outside the IR35 legislation. However, when she accepted a new role at the Home Office in June 2021, arranged by recruitment agency Tripod Partners, her contract was classified as inside IR35. This classification meant she was treated as having an employment relationship with her client.

Appiah opted to continue working via her limited company under the IR35 framework, which required employment tax deductions to be made by Tripod Partners before she received payment. These deductions included income tax, employee National Insurance (NI), and employer NI contributions. The tribunal ruled that deducting employer NI directly from her pay was unlawful, as deemed employees under IR35 regulations should not bear the cost of employer NI.

Call for Simplification of Employment Status

The tribunal decision has reignited calls for clearer and more streamlined legislation surrounding employment status.

Seb Maley, CEO of Qdos, commented, “This is a stark reminder of the complexities that plague employment status – exacerbated by the introduction of the off-payroll rules. Nobody is questioning if the worker belonged inside IR35 and therefore should have been subject to PAYE tax. It’s that the tax was unlawfully deducted from the worker’s pay – leaving them worse off and, ultimately, the recruitment agency with a sizable bill.

“This case could also be just the tip of the iceberg. It brings the issue of compliance into sharp focus for businesses engaging and placing flexible workers, not to mention the need for Labour to deliver on their recent pledge to simplify employment status once and for all.”

Rebecca Seeley Harris, of ReLegal Consulting, added, “Finally, justice for a contractor working inside IR35, who’s taxed as an employee but doesn’t receive any of the rights or protections of employment. This judgment could be the catalyst for many more like it, given this is common practice in the industry. If this proves to be the case, it would cause havoc in the labour supply chain, at a time when the government is looking to stimulate growth.”