Nine months in the making, the 116-page Matthew Taylor Report into UK employment is finally out. Reactions so far are varied, with some pointing out that it falls short of meeting the most urgent needs of Britain’s more flexible workers. However, there’s definitely a recognition there of the need to clarify the employment status of huge numbers of people caught in a limbo between one status and another.
The first thing to acknowledge is that the report isn’t necessarily an indication of any specific changes in government thinking. However, it does contain recommendations, and as such serves as a useful insight into possible eventual action. Some of those recommendations are bold – perhaps enough so to seem a little unlikely right now. However, it’s not difficult to imagine some of the key proposals filtering their way into government policy over the next few years. Others might take some kicking around in consultation before they’re considered practical, while a few will probably never be implemented at all.
On the key topic of employment status, the report comes down in favour of shifting the balance so that legislation does more while the courts do less. This approach means moving employment status away from the common law approach of letting the courts effectively set the beat. Instead, more specific legislation would be needed to tackle the issue fully. In theory, this could be very good news, leading to much greater clarity. Employment status is a notoriously sticky business for employers, with the report acknowledging that, as things stand, companies need an almost encyclopaedic knowledge of court cases to be able to make informed decisions.
The problem, then, is that the more granular and specific the rules become, the more efficiently people can find ways around them. Certainly, a more “broad brush” approach could be taken with legislation to cut down on loopholes, but this would almost inevitably drag a considerable proportion of people unfairly into the remit of the legislation.
The report also highlights some of the key factors in determining whether an individual is an employee or not. These include the need for personal services, the amount of control exerted, the obligation to offer and accept work and whether there are other business factors to consider. It is suggested that these be included in legislation in order to clarify when an individual should be considered an employee.
There was, quite rightly, a strong focus on the lack of clear distinction between an employee, a worker and a self-employed person. At the moment, a “worker” is not technically an employee, but is afforded rights such as holiday pay and the National Minimum Wage. The report proposes to change the term “worker” to “dependent contractor”, applying to those who are technically neither employees nor self-employed people running their own business. Proving an individual is a worker currently depends heavily on whether their personal service is required. The report suggests moving away from this approach and focussing instead on the amount of control exerted over the worker. The requirement for personal service would still be a key factor to consider, but no longer pivotal over dependant contractor status.
An important point made only briefly was that being employed for tax purposes would naturally make someone either an employee or dependent contractor. If implemented, this would have a significant effect on umbrella companies operating the elective deduction model, whereby the individual is self-employed but PAYE is operated because of agency legislation. This would all but end that type of business, as the government would say that if they are subject to PAYE, they are either employees or workers and entitled to rights such as holiday pay. This could potentially be implemented relatively quickly and easily.
The report also urges the alignment of tax and employment tribunals, which would be of great significance. If HMRC successfully challenged someone’s employment status, the affected individual would automatically be deemed an employee, and therefore entitled to back-dated employment rights by default.
Another interesting suggestion is that HMRC become the police and enforcers of unlawful deductions made on low-paid workers. This could be a very good move to ensure those on lower wages aren’t exploited and have a powerful voice. However, investment into HMRC would be essential to achieve this, and many believe the system is already under-resourced enough without taking this on.
The last, and definitely most controversial, proposal is that National Insurance contributions should be the same for self-employed people as for employees. This would mean increasing the rate paid by the self-employed, as well as introducing an “Employer’s National Insurance” style of contribution from companies paying the self-employed. This would be neither easy nor popular, and so probably ranks among the less likely suggestions from the report to survive in practice. After all, public outrage recently saw the swift death of a proposed 1% rate increase on the self-employed. Even so, the report does encourage the government to raise awareness of this issue with a view to introducing it at some point.
RIFT’s own Kye Burchmore, an expert in resolving employment status disputes, offers the following assessment of the review:
“Overall, it is an interesting report and I believe some of the changes can be implemented fairly easily and quickly. Others, such as amending employment status legislation, will take much longer and need full consultation. I do not believe any government will increase self-employed National Insurance to match the rates paid by employees for the foreseeable future.”
If you would like to talk through the implications of the report for your organisation, or discuss an employment status audit, please get in touch.