Employment status reforms: combating "bogus self-employment"
As part of its sweeping raft of employment reforms, the government pledged to move towards a simpler two-tier framework for employment status. Does this mean the current three-tier system of employee, worker and self-employed individual is about to disappear? The short answer is not yet. However, the consultation does propose significant changes to the employment status tests and could make it more difficult for organisations to classify individuals as self-employed.
The existing position
There are currently three main categories of employment status – employee, worker and self-employed.
The distinction between them is important because it determines the legal rights available to each category. Employees enjoy the broadest range of rights, workers benefit from a more limited set of protections and genuinely self-employed individuals fall outside the scope.
Proposed reforms
The government is consulting on a number of reforms, including:
Placing less emphasis on personal service, so that a right of substitution does not automatically outweigh other factors indicating worker status.
Considering the creation of a single status of "worker" as a longer-term goal.
Introducing a presumption of worker status in tribunal proceedings. This would shift the burden from onto the engager to demonstrate that the individual is genuinely self-employed.
Clarifying that repeated failures to recognise employment status, where previous tribunal decisions have already established the status of colleagues in similar roles, could result in an additional penalty of between £100 and £20,000 per claim.
Exploring whether the Fair Work Agency's powers could be used to bring employment tribunal claims on behalf of individuals in order to determine their employment status.
The government is also consulting on:
A new right for self-employed individuals to receive a written statement.
Extending certain blacklisting protections and health and safety protections to self-employed individuals.
Developing an interactive online assessment tool, modelled on the existing CEST tax tool, to help individuals and businesses assess employment status.
How could the worker status test change?
The consultation leaves little doubt about the government's objective to "bear down on bogus self-employment" by making it harder to classify individuals as self-employed where that does not reflect the reality of the relationship.
A key proposal is to place greater emphasis on the control being exercised over the person carrying out the work when determining worker status.
Currently, the courts focus heavily on personal service. A right of substitution can therefore prevent an individual from establishing worker status, even where there are other strong indicators of an employment relationship. The government proposes changing this approach by ensuring that both personal service and control are considered together.
In particular, where a substitution right is limited to suitably qualified replacements, the government is considering whether that should remain compatible with personal service, rather than automatically undermining it. It is also considering legislating to make clear that a right of substitution should not, on its own, outweigh all other factors pointing towards worker status
The consultation further suggests that the ability to set or negotiate pay rates could become a more significant factor in distinguishing workers from those who are genuinely self-employed.
What next?
The direction of travel is clear. The government wants to widen the scope of worker status so that more individuals gain access to employment law protections.
However, given that it will take time to consider the responses to the consultation once it has closed and then develop detailed proposals, a move to single worker status is clearly longer-term goal.
The consultation does not address the long-standing mismatch between employment status for employment law purposes and for tax purposes. For HMRC, individuals are either employed or self-employed. There is no mention of aligning the two separate systems.
What we have seen is a first step towards the government's aim of bringing greater clarity to employment status. Whether these proposals will deliver meaningful simplification remains to be seen.