Shock bill for 'flawed' contract

ONE of the world's biggest insurers faces an enormous tax bill after an employment tribunal ruled that a salesman working for it should be treated as an employee, rather than self-employed. The decision could leave Combined Insurance Company of America having to pay employer's tax for a large part of its staff.

The company, which operates in the UK from offices at Kingston-upon-Thames, Surrey, is a subsidiary of international insurer Aon, a specialist in health and accident cover.

The tribunal's ruling that Robin Wallington should be regarded as an employee means that more than 1,000 people hired by the company on past or present contracts could enjoy similar rights. This would leave it owing millions of pounds in unpaid National Insurance and income tax under Pay As You Earn rules.

The tribunal said that Wallington was an employee because his contract was flawed and he had effectively been treated just like an employee. He had company training and faced constant supervision by a manager. He did not take on any financial risk, nor did he have any control over profit margins generated by selling the firm's policies.

However, Combined Insurance did not offer him holidays, sick pay or pension scheme entitlement, and he had no guidance on the number of hours he should work.

Tim Pleece, the company's head of legal services, said: 'Everyone contracted to us is deemed to be self-employed. We are satisfied with this.' An Aon spokesman added: 'This is not uncommon in the industry. Combined Insurance constantly reviews the contracts of staff and is happy with their status.'

Since the ruling, a former sales manager contracted to the company has had several thousand pounds he owed in tax written off by the Inland Revenue, as well as receiving a tax refund. The Revenue is also pursuing Combined Insurance for the tax it says should have been paid on his behalf.

Tax officials would not comment but it is understood a wider investigation is taking place into Combined Insurance's tax affairs. Already, according to insiders, three others who have worked for, or are working for the company, are talking to lawyers.

Mike Huss of employment law specialist Peninsula said: 'Employment rights do not apply only to full members of staff. There are employees and self-employed people, but also another category of worker who sits between these two. They qualify for many of the same rights as staff, including benefits under the working time regulations, minimum wage and discrimination rules.'

Huss pointed out the possible tax implications for Combined. 'The Inland Revenue and benefits agency said some years ago that companies had until 1998 to put their house in order over employment status. They said that if this very situation was found, they would act on it. They can go after back-tax payments and demand all the tax owed without any court ruling.

'Companies that operate in this way are taking a great risk because the implications are huge. It could result in job losses.'