Could the employment status consultation revolutionise the world of work?

23 March 2018

Government published a consultation in response to the Taylor Review, along with several other consultations, to address recommendations that they wish to action in relation to defining an individual’s employment status.

Employment status determines the rights an individual is entitled to, the tax position of the individual and the tax position for the person engaging the labour and so, it is vital that it is determined correctly.

Key Findings

The review found that the current employment status framework works reasonably well for most people, but it identified a need to provide individuals and businesses with more clarity and certainty. It suggests that the following four recommendations could improve the employment status framework:                                                                                      

  1. There should be a clearer outline of the tests for employment status with the key principals being set out in primary legislation and using secondary legislation and guidance to provide more detail.
  2. The 3-tier approach for determining who receives which employment rights (employee, limb (b) worker and self-employed) should be kept.
  3. Limb (B) workers (those eligible for employment rights but are not employees) should be renamed as “dependant contractors”.
  4. When creating the test for “dependant contractors”, control should have greater importance with less emphasis on the requirement to perform work personally.

The Legislative Change

The current employment status framework has developed through case law over time enabling a degree of flexibility which can cause uncertainty. The consultation considers whether the Taylor Review recommendation that;

the government should replace the minimalistic approach to legislation with a clearer outline of the tests for employment status, setting out the key principles in primary legislation, and using secondary legislation and guidance to provide more detail

would achieve the intended aim of making determining employment status clearer and easier and what the “key principles” should be.

Currently, the three tests for determining employment status are;

  • Mutuality of Obligation
  • Personal Service
  • Control

Government asks for feedback on whether these tests are still relevant in determining an employee’s entitlement to full employment rights and if so how could each concept be set out in legislation. In addition, it looks at how these tests are currently used to establish worker status and whether they remain valid.

The consultation document wants opinion on whether these additional factors should be included in primary legislation when determining someone as an employee and suggestions of any other factors that should be included.

  • Does the individual have any financial risk?
  • Are they part and parcel of the organisation?
  • What was the intention of the parties?

For determining worker status for employment rights, the courts also consider a number of factors to establish if the individual is “in business on their own account”. The Taylor Review suggested that if the key principals were brought into primary legislation then secondary legislation could be used to provide further detail, e.g. when is a substitution clause is not reasonable? What does control look like in the modern working environment?


A Statutory Employment Test

Although the review’s recommendation was to broadly bring the current employment status tests into legislation, Government are also seeking views on how a new, more precise statutory employment status test could be structured including the types of criteria that could be suitable in devising such a test which would be used across the board. Their suggestions include such criteria as where an engagement is over a certain length automatically being classed as an employment relationship and if more than a certain percentage of an individual’s income comes from one engager then the relationship could be considered an employment relationship.

However, it is thought that a simplified test could result in businesses structuring their workforces in order to achieve desired outcomes from the test.

Working Time for National Minimum Wage

The consultation wants to look specifically at the area of app-based employers and the application of NMW to ensure that the legal framework is relevant for workers engaged in this way. It also asks for comment on how such employers may change their business models in the light of emerging case law (e.g. Uber) and the impact this may have on the business and its workers.

Aspire Comment

The complexity of employment status has to be its biggest pitfall – even the government have put it in their “too hard” pile since 1996. Employment status has been in the spotlight so much over recent years that it’s hard to believe somebody out there will have nothing to say in response to this consultation.

The proposals made within the consultation have the potential to completely change how we determine employment status for tax and employment rights purposes and, as such, have wide ranging consequences for the entire UK labour market.

Aspire are aware of the impact that potential reform of employment status could have, especially on the construction industry which engages the largest majority of self-employed labour in the UK.

View the full consultation here.