The government has published its response to the consultation on employment status, confirming that there will be no reform to the law as it currently applies in respect of employment status determinations for tax and employment rights. Three new guidance documents have also been published to assist with status determinations for the purposes of assessing employment rights.
The response follows a more than four-year hiatus since the original consultation, which sought views on the Taylor Review propositions and the then government’s commitment to providing clarity and certainty around employment status.
Conclusions from the consultation response
Respondents to the consultation included Business Representative Organisations and Trade Bodies, businesses, trade unions and individuals. Although most respondents to the consultation agreed that there were issues with the current system, concerns were cited that the codification of current tests or introduction of an objective or less complex test would not allow enough flexibility when applied to new business models, including the gig economy.
Key conclusions from the government’s response include:
- The three-tiered status framework for employment rights (i.e. employee, worker and self-employed) provides flexibility and should be retained;
- While recognising that the boundaries between the three statuses can be unclear, the government ultimately concluded that the benefits of creating a new system were outweighed by the short-term uncertainty and cost of reform at a time when businesses are still recovering from the pandemic;
- The government recognised that there could be greater alignment between the two-tier tax system (employed and self-employed) and three-tiered employment rights system, but again concluded that now was not the right time for reform, considering the current economic climate; and
- The government has committed to updating its guidance on calculating the minimum wage to provide clarity regarding the calculation of working time for National Minimum Wage purposes for platform workers.
New government guidance
Guidance has been published to assist with status determinations for the purposes of employment rights, including:
- Employment status and rights: checklist for employers and other engagers
- Employment status and employment rights: Guidance for HR Professionals, legal professionals, and other groups
- Employment status and rights: support for individuals
The guidance for professionals provides worked examples of how the various factors relevant to assessing employment status may apply in practice and examples of how the law may apply in respect of the gig and platform economy.
Importantly, the new guidance does not apply to employment status for tax or National Insurance Contributions (NIC) purposes.
Views from the Deloitte Fair Pay team
Although the employment status guidance may provide some further clarity regarding the application of employment law in practice, we are no closer to legislative reform than we were in 2018, with the government commenting that it is appropriate to let the rulings from recent status cases such as the Uber judgment “flow through to marketplace practices before considering any further interventions”.
For employment rights, an incorrect status determination can result in liabilities including in respect of holiday pay, minimum wage and working time requirements. Employers should continue to refer to the body of case law as well as the recently published guidance when determining status.
For employment tax and NIC purposes, status determinations also remain subject to the ever-evolving body of case law. Some recent cases indicate that the status tests for employment law and rights are on a course of divergence, which adds to the complexity of the situation. HMRC guidance, including HMRC’s CEST tool remains the relevant source of guidance for employment status for tax and NIC. Businesses contracting for labour need to be mindful of the distinctions and risks of engaging individuals on a particular basis. This includes engaging workers who have a Personal Service Company (PSC) under the IR35 rules. Incorrect status determinations can incur material liabilities of PAYE and NIC, so diligence remains imperative.
For an overview of the case law see our employment and tax webinar from earlier this year on issues and trends for worker status in the gig economy.
If you would like to speak to somebody regarding employment status, please do not hesitate to contact one of our team:
Employment Law Partners
- Kathryn Dooks +44 20 7303 2894
- Andrew Lilley +44 20 7007 5381
- Andrew Howard +44 20 7303 0891
- David Williams +44 20 7303 3547
- Marian Bloodworth +44 20 7303 3565
Employment Tax Partners