UK Employment series - Employment status and the gig economy Government proposals

Introduction

Hello and welcome to our latest employment video. My name’s Paul Griffin and I’m Head of the Norton Rose Fulbright Employment Team in London.

The Taylor review on Modern Working Practices was published last summer. The Government has now published its response together with four consultation documents. The most extensive of these is the one on employment status – and this is the subject of today’s video. We’ll also look briefly at other key proposals raised in the Response.

Background

The Taylor Review of Modern Working Practices was published in July 2017. The Review’s overall objective was to achieve the goal of “good work” for all, meaning that all work in the UK economy should be “fair and decent with realistic scope for development and fulfilment”.

With this aim in mind, the Review made a total of 53 recommendations, some for specific changes in the short term, and others for longer term strategic shifts.

The Government response – Good Work - was published on the 7th of February. The Response makes it clear that the Government now takes responsibility for not only the quantity of jobs available in the UK, but also the quality of work.

It sets out its proposals to act on almost all of the Review recommendations, although many are dependent on the outcome of the various consultations.

As already mentioned, today’s video focuses on the employment status consultation, which could potentially result in the most significant changes to existing laws.

Employment status for employment rights

In the UK, there’s currently a three-tier approach to employment status for employment purposes: individuals are either employees; workers; or self-employed contractors.

And which category they fall into, dictates the level of their employment protection rights.

Employees enjoy the full range of employment rights, including eligibility for statutory sick pay and protection from unfair dismissal, workers enjoy a more limited set of rights, including the right to paid holidays and the National Minimum Wage, whereas the self-employed enjoy none of these rights.

Individuals’ employment status depends on a range of criteria established through case law. In light of modern employment practices and new ways of working, such as in the so-called “gig economy”, the Review recommended that these criteria be clarified and set out in legislation, so that individuals are provided with more certainty about their status and related rights.

In the Response, the Government accepts that as the labour market has developed, there’s more uncertainty about an individual’s employment status, and the boundary between employees and workers, and between workers and the self-employed, has blurred.

In view of this, the employment status consultation seeks views on the main problems with the current system, and asks whether the Review’s recommendation for legislative change and codification of the main principles is the right approach. Will it allow the courts enough flexibility?

And if codification is the right approach, should this be based on the current test for employment status – which is based on: mutuality of obligation, personal service and control - or should other factors considered by the courts be included? Such as financial risk and provision of equipment?

An alternative to legislation would be using different objective criteria to decide employment status, such as length of engagement or place of work.

Or perhaps an entirely different statutory test should be introduced?

Some of the suggestions given are:

one based on the German social security model - where a range of criteria are used, and if an individual fulfils three out of five conditions, such as dependence on one employer for a long time, he will be classed as an employee.

Alternatively, a simpler test could be introduced, such as the ABC test for contractors used in the States.  This is where an individual is assumed to be an employee unless three main criteria apply:

Firstly, freedom from company control;

Secondly, the contractor performs work outside the usual course of the company’s business or place of business; and

Finally, the contractor is engaged in an independently established business.

The consultation asks for views on each of these possible approaches. All potential changes are open for discussion, even those requiring an entirely different approach to the one which has been established by the courts over many years. But of course there’s no way of knowing at the moment what suggestions will be taken forward, or indeed when any changes will take effect.

Employment status for tax purposes

Currently, for tax purposes, there are only two types of work status: employed or self-employed. This means that a worker for employment law purposes who is not an employee, is treated as self-employed for tax purposes.

Whilst tax was not part of the Review’s original terms of reference, it concluded that it wasn’t possible to separate the two issues of employment status and tax entirely, and recommended that renewed efforts should be made to align the employment status and the tax frameworks.

On the Review’s recommendations about tax, the Government notes that the current employee/self-employed tax regime has been in place for over two hundred years, and moving away from the current test would be a fundamental change.

However, they remain open minded, and so seek views on whether the boundary between the two tax regimes should be based on something other than when an individual is an employee, and on whether the definitions of “employee” and “self-employed” for tax and employment rights purposes should be aligned.

The employment status consultation closes on the 1st of June this year. At some point after that, it’s hoped that we will have a clearer idea of what changes will be made in this area.

Other key proposals

Of the other proposals which are not related to employment status, a number are of more immediate interest than others:

• Firstly, as part of its consultation on the enforcement of employment rights, the Government proposes to name and shame employers who fail to pay tribunal awards, and to increase the maximum financial penalty for “aggravated” breach from £5,000 to £20,000.
• In addition, the employee right to a written statement of employment particulars is to be extended to workers. 
• And the Government also proposes that all individuals should have the right to request a more permanent and stable contract which reflects the reality of their role – so that, for example, a zero hours worker, who effectively works the same hours week in, week out, should have the right to ask for a permanent contract which reflects that fact, and which guarantees the hours worked.

Action already taken

Since publication of the Response, following up on a couple of the issues raised, the Government has already laid orders before Parliament to extend the employee right to a payslip to workers, and also to require employers to state the hours being paid for on the payslips for time-paid workers. These changes are due to come into force in April 2019.

And in order to increase awareness and encourage take-up of shared parental leave, the Government has also launched its “share the joy” campaign.

Conclusion

This video is intended to provide you with a summary of the key elements of the Government response to the Taylor review. The closing dates for the four consultations range from the 9th of May to the 1st of June this year. We shall of course keep you updated as to further developments, but if you would like any more information, or have any questions on any aspect of today’s topics, then please don’t hesitate to contact us.

Thank you.