Employment status is at the heart of both employment law and the tax system. It critically determines the rights and protections of an individual, as well as the taxes that an individual and the company that they either work for – or with – must pay.
While the growth of the gig economy has provided customers with more flexibility and competitive prices, the law around employment status has arguably failed to keep pace. As a result, the government has sought to review the employment status framework to ensure it reflects the different ways individuals can work in the UK.
The consultation, which was launched in response to the Taylor Review in 2017 and followed the Good Work Plan, explored wider employment status reforms and whether they could provide individuals and businesses with more clarity.
The government’s response
The government considered responses to the consultation from a range of trade unions and businesses. Most respondents agreed that there are issues with the current employment status framework; however, since there was no consensus on how to reform it.
The government reinforced its view that the three-tiered employment status framework – employee, worker and self-employed – allows flexibility for both employers and individuals, while ensuring that workers in more casual employment relationships have core protections (eg, minimum wage and the right to holiday pay).
While the government acknowledged that there are problems with the current system, including the fact that boundaries between the different statuses can be unclear, it concluded that the benefits of creating a new system are currently outweighed by the risks associated with legislative reform. For example, while a change may bring clarity in the long term, the government said that it ‘might create cost and uncertainty for businesses in the short term, at a time when they are focusing on recovering from the pandemic’.
The government’s hope is that the new guidance, along with existing case law, will help provide clarity on how to approach employment status questions.
Another issue is that, while the employment system has three statuses, the tax system has two – self-employed and employed. The government considered whether the current worker status is still relevant, but determined that the three-tiered employment status framework provides the right balance for workers’ rights and the labour market. The government also added that, while there could be benefits to better aligning the employment and tax frameworks, there was a lack of consensus on this issue and, therefore, it was not the right time to bring forward proposals to do so.
The government also confirmed that it does not plan to introduce a similar Check Employment Status for Tax (CEST) tool for determining employment status.
New guidance on employment status
The government has published three separate guides designed to improve clarity around employment status:
employment status and employment rights guidance for HR professionals, legal professionals and other groups (guidance for professionals);
guidance for individuals;
guidance for employers.
The guidance is not legally binding and it does not change the legal position: only a court or tribunal can make a final decision on employment status for employment rights purposes.
The guidance for professionals, however, aims to help employment law advisors by outlining how to comply with the rules and regulations, and by providing additional clarity on the different employment statuses, how to determine them, and the rights they each have. It also deals with developments in the gig economy and guidance for other types of working arrangements (eg, zero-hour workers, freelancers and agency workers).
Updated guidance on calculating minimum wage
The Department for Business, Energy and Industrial Strategy (BEIS) has provided further details on how to assess what counts as “working time” for minimum wage purposes. The guidance, which mostly relates to workers in the gig economy, states that the factors that need to be considered when determining what counts as ‘working time’ for these purposes include the time a worker is:
obliged to log into an app/platform;
waiting after accepting a job;
travelling to a pickup point;
carrying out a job for another app/platform.
For those expecting wholesale legislative change to the employment status framework, the government’s response to the consultation will be disappointing.
While the guidance does not really assist in clearing up this tricky area, it is clear that its complexity and nuance is both its beauty and its curse. The UK is one of the few jurisdictions in the world to have more than two legally recognised employment statuses and, while this provides flexibility, it can also lead to confusion and uncertainty. What is also clear is that matters have overtaken this consultation since the Good Work Plan – the UK labour market has evolved and the government’s focus is firmly on the economy post-pandemic.
While the new guidance is welcome, the starting point on any employment status-related issue will remain the case law, and not any forthcoming legislation in this area.
Safwan Afridi is an employment lawyer at Norton Rose Fulbright