New government guidance does not solve employment status and tax issues, experts warn

Lawyers say case studies and further explanations around how employment status and tax frameworks work in practice still leave potential for confusion

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New government guidance which aims to clarify workers’ rights to national minimum wage and paid leave, as well as cohering employment status case law, has been criticised by legal experts for not aligning employment status and tax frameworks.

The government says the guidance will better support workers – particularly those in the gig economy – by improving the understanding of the rights they are entitled to, as well as offering advice for small businesses to help them better understand and access the law.

Published alongside a response to a consultation on employment status – undertaken as a result of the contentious 2017 Taylor Review into the gig economy, which recommended changes such as guaranteeing higher levels of pay to insecure workers – Jane Hunt, business minister, said the new guidance will benefit both workers and businesses via its advice.

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She added: “Today we are tidying up the rules, helping workers to find out if they are being treated fairly by their workplace.

“[The guidance] will also give businesses the confidence and the tools to better support their staff.”

Paul Britton, director of Britton and Time Solicitors, explained that the guidance has to be fluid by necessity, as the law evolves, in order to remain useful to everyday workers. “In case the guidance is unclear or does not mention a particular set of circumstances, the guidance includes case studies that can be applied to a particular situation,” he said.

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However, Shazia Imtiaz, general counsel at the Association of Professional Staffing Companies (APSCo) said more was needed from the guidance in order to build on the 2018 Good Work Plan, particularly regards clarity of employment status tests as well as better alignment of employment status rights and tax frameworks.

She said: “Any clarity around employment status, rights and tax is certainly welcome. However, the response to the consultation is missing the legislative changes that we had hoped for.”

Susan Ball, employment taxes partner at RSM UK and president of the Chartered Institute of Taxation, added that while the guidance offered case studies for employers and individuals to use, it did not eliminate the potential for confusion.

She said: “It’s disappointing that after many years of discussion the government has decided now is not the right time to bring forward proposals for alignment between the two [employment and tax] frameworks. 

“Instead, it states it will work closely with stakeholders to explore longer-term options to improve the employment status system for tax to ensure it is as clear as possible and usable for all parties.”

Similarly, Lee McIntyre-Hamilton, partner at Keystone Law, added that more clarification was needed around employment status tax assessments, particularly because ‘worker’ still exists as an employment status but doesn’t exist for tax purposes. “The current approach relies on largely subjective tests based on an extensive body of case law,” he continued.

Seb Maley, CEO of IR35 specialist Qdos, said more work was needed around IR35 and around employee rights, especially as many contractors will continue to be taxed as employees but without the protection of employment rights.

“This response is astonishing, even for this government. If now isn’t the right time to align tax and employment status, when is?” he said. 

“In addition, refusing to abolish what’s known as zero rights employment is unjust, illogical and a huge oversight.”

Further criticism has been made of both the guidance and the still-to-materialise Employment Bill over the enforcement of rights and how they will be overseen.

Carolyn Brown, employment law partner and head of client legal services at RSM UK, explained that either should have provided an update on plans to better enforce access to employment rights.

“No additional guidance is given for the challenges of enforcement that are needed to ensure workers are treated fairly and consistently and there has been no mention of the joint enforcement of a number of employment legal rights via the SEB (Single Enforcement Body) proposed in December 2019,” she said.

Rachel Suff, senior policy advisor for employment relations at the CIPD, welcomed the new guidance but believes greater awareness is needed around employment status as well as reform. “The CIPD has consistently called for a high-profile, government-led campaign to build greater awareness of people’s rights at work including non-statutory guidance on employment status,” she said.

“The guidance is a positive step but we need more deep-seated reform, including the abolition of worker status, and switching the legal presumption to being an employee, unless proved otherwise by the employer.”

The Employment Status consultation, which took responses from business owners, trade bodies and unions and was published by the government earlier this week, stated that employment rights and tax frameworks were not under consideration during the process.

This is despite it coming as a response to the Taylor Review, which though it did not recommend significant changes to the law, did make recommendations around worker status, tax, and better access to employment rights and their enforcement.

The UK presently has a three-tier employment status framework, broken down by employee, worker and those that are self-employed, and has two statuses for employment taxes.