National Minimum Wage

What is the Elective Deduction Model?

14 January 2015

What is the Elective Deduction Model?

HMRC are reported to be keen to clamp down on the Elective Deduction Model (EDM) in a similar vein that it has with the payday by payday tax relief model that some umbrella companies used as a means of by-passing the national minimum wage legislation.

But what is the Elective Deduction Model?

In summary an Elective Deduction Model is an engagement model where the worker remains on a self-employed contract for services but earnings are taxed. Because the person is self-employed he/she is not entitled to National Minimum Wage, pension, holiday pay, notice pay, SSP and other employment rights. It also avoids The Agency Workers Regulations (AWR) and False Self-Employment Legislation. It is therefore a way that some companies can bypass the National Minimum Wage to the detriment of the worker.

In effect workers as self-employed for employment law purposes but employed for tax purposes.

The model first appeared as an attempt to get round the false self-employment legislation introduced in April 2014.

At Umbrella, like all compliant umbrella companies, we do not and have never operated either an Elective Deduction Model or a Pay Day by Pay Day Model.