Associate contracts: how to calculate holiday pay
Last year saw two significant cases before the employment appeal tribunal that brought into question whether associates could continue to be engaged on self-employed contracts. Whilst we have been warning of the dangers of engaging associates in this way since 2015, these cases obviously caused the profession concern; the BDA responded by creating a model associate worker agreement .
Workers are entitled to paid holiday and enrolment into a workplace pension. Both will have the potential to cost dental practices a significant amount. How can the dental practice accommodate those costs?
Rather worryingly, the BDA is silent in respect of pension auto enrolment in the model associate worker agreement.
For holiday pay, the BDA has added a clause to the contract that says pay will be based on the average earnings for the previous 52 weeks. The BDA has suggested in its accompanying video that practices and associates will need to work together to negotiate new licence fees, however, even with a reduction to the licence fee, this does not factor in the administrative costs in implementing this clause.
The Government has just announced that it is considering making ‘rolled up holiday pay’ legal; i.e. a set amount paid each month to pay for holiday leave. This had previously been deemed illegal practice under EU laws. Consultation on this proposal ends in July. If this is implemented then this will be a much easier system to use to ensure holiday is paid correctly and with little administrative work. Could we have finally found that illusive Brexit benefit?
You will be able to offer associates a percentage for earnings plus 12.07% for holiday pay. If you would normally offer them 45% as a licence fee, you deduct 12.07% from this and offer 32.93%. Each month you pay the associate 32.93% fees plus 12.07% of this as holiday pay, meaning each month they earn the equivalent of 45%. They then get to take 5.6 weeks holiday per year (or the part time equivalent).
If dental practices do implement this formula it will need to ensure holiday pay is clearly stated on any payment statement, and is shown as separate to other earnings. They will also need to draft holiday pay clauses into any associate agreement.
Whilst some employers do currently implement rolled up holiday pay despite it being illegal, you may choose to wait until the Government has announced its plans, so you do not fall foul of the current law. If you do implement before then, make sure you follow the advice above. Workers can only claim for unpaid holiday, meaning if holiday has clearly been paid, there is no claim regardless.
In terms of pension auto enrolment, you cannot offer workers an inducement to opt out of pension duties. That means offering them a higher percentage so they opt out. However, if you have not yet engaged the associate you can look to factor in the costs to the offer you make them. Employers must pay 3% of the worker’s earnings into a pension scheme. Those with NHS contracts may already be meeting this minimum requirement. Those in private practice should consider this additional cost and factor it in to calculations when offering associate roles.
It is a risk that by reducing existing associates’ licence fees by 12.07% for rolled up holiday, the courts could say that their overall pay is being reduced, as such they are still not receiving paid holiday in line with statutory requirements.
However, case law has changed this area of law drastically over the years. The offer you would make a self-employed associate with no worker benefits, compared to an associate with worker benefits, is always going to be different. Dental practices simply cannot afford to pay associates for worker benefits on top of the packages they already receive. This could bankrupt NHS practices. Whether a tribunal would take this into account when considering any claim, we just don’t know. Our view is that it would be fair and equitable to do so.
We have seen contracts try to deal with this point, by adding a rolled up holiday pay clause into the contract in case an associate is deemed to be a worker. However, if the pay statements do not reflect this practice, i.e. clearly mark which part of the pay is for holiday, then these clauses will not hold up in court.
As stated above, you cannot offer an inducement so that associates opt out of pension auto enrolment. For current associates, if you decide to offer worker status this is a cost dental practices will have to bear.
If you would like advice on associate contracts and their status in your practice, please do not hesitate to contact the team on 0207 388 1658 or at firstname.lastname@example.org.
Laura Pearce, Senior Solicitor
Please note that the information contained in this article was correct at the time of writing. There may have been updates to the law since the article was written which may affect the information and advice given therein.