Advance Payments – is this a problem for an Employment Business?
Recent changes mean that Tutor Agencies need to be clear whether they are working as an
- Employment Agency or
- Employment Business or
- perhaps as both, but for different services.
Taking advance payments seems to be causing concern for Tutor Agencies operating as an Employment Business.
A few Employment Business Tutor Agencies have explained that they take payment in advance for sessions, and this has always worked well for their business. Some of the examples of advance payments are as follows:
Scenario 1: Advance Payments – Paying in advance
A Tutor Agency engages a self-employed Tutor as follows:
- The Tutor’s hourly rate is £35. The Tutor Agency’s fee is £15.
- The Tutor Agency pays the Tutor’s fees every week.
The Tutor Agency agrees lessons or sessions with the student’s parent (the client). They agree that the student will have 1 session a week at a cost of £50 a session. For this purpose, I’m ignoring VAT.
Once the client signs up (i.e., they agree to work with the Tutor Agency), the client pays as follows:
Invoice 1 – £150
£50 for the first lesson
£100 advance.
That £100 advance will either be used by
- the client for their final 2 weeks of tutoring.
- the Tutor Agency if the Client breaches their agreement. For example, the client should give 2 weeks’ notice to end the tutoring but doesn’t give notice.
Ultimately, if there are no issues with the tutoring, the £100 will either be
- Used for the final 2 weeks of tutoring if the client has given the agreed notice or
- Refunded by the Tutor Agency.
The Tutor Agency pays the Tutor’s fees every week, as agreed.
Scenario 2: Advance Payments – Discounts for block booking
A Tutor Agency engages a self-employed Tutor as follows:
- They pay the Tutor’s fees every week.
- The Tutor’s hourly rate is £35. The Tutor Agency’s fee is £15.
- They both agree that the Tutor’s hourly rate is discounted to £32 if a client books a block of 10 sessions.
The Tutor Agency usually bills a client for £50 a lesson. (Again, we’re ignoring VAT). They offer clients a block booking discount. Instead of 10 x £50 (£500) it’s £450 for of 10 sessions if they pay in advance.
The client wants to take advantage of the discount. They book and pay for 10 lessons in advance.
The Tutor Agency continues to pay the Tutor weekly basis, as agreed for this client. The Tutor is paid at the agreed discounted rate of £32 because of the block booking.
The Verdict
Advance payments shouldn’t cause any problems for a Tutor Agency operating as an Employment Business PROVIDED that they stick to what the Tutor has willingly agreed to. So, for example:
Scenario 1 – Advance Payments – Paying in advance
There’s no issue with the Tutor Agency being paid in advance. However, they MUST pay
the Tutor
- the agreed hourly rate
- when (i.e., it’s been agreed to pay at month’s end).
Scenario 2 – Advance Payments – Discounts for block booking
There’s no issue with agreeing a discounted package and being paid in advance PROVIDED that it’s something that the Tutor has willingly agreed to. So, for example, if the tutor’s hourly rate is £35, the Tutor Agency can’t make it a condition of engagement that the Tutor must accept a discounted hourly rate of £30 if the Tutor doesn’t want to.
There’s no doubt about it that there are some grey areas when Tutor Agencies operate as either Employment Businesses or Employment Agencies. As legal small business experts we make things clearer and find ways to implement the new regulations to the best advantage for our clients.
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