Taylor Review recommends reform of employment rights and tax status

17 August 2017

The continuous stream of employment tribunal cases and union challenges to employment status demonstrate that clarity is needed. Legislation is awaited to adopt the recommendations with an initial Government response expected by the end of 2017.

Replacing worker with dependent contractor
A key recommendation is to rename worker status as 'dependant contractor' and to provide greater clarity and certainty on employment status for businesses and individuals. A dependent contractor would benefit from the flexibility normally enjoyed by a self-employed contractor but also have the basic employment rights of a worker currently such as sick pay, holiday pay and the National Minimum Wage (NMW).

Updating the legislation, with a particular focus on the degree to which an individual is controlled and supervised by their employing entity is likely to lead to more individuals in the gig economy and the wider flexible workforce being classified as dependent contractors entitled to basic employment rights. The Review also recommends that dependent contractors are treated similarly to an employee in relation to class 1 NIC.

Aligning the status tests for tax and employment law
The Review recommends that the status tests for employment rights and employment tax are aligned. Currently, employment law recognises 3 statuses (employee, worker and self-employed) but tax regulation only recognises two (employed and not-employed). Aligning these tests is a sensible suggestion as it will remove a layer of complexity and uncertainty for all.

Potentially new rates of NMW for gig economy employers
The Review recommends that gig economy employers are required to prove through the use of real time data readily available to workers that workers are capable of earning at least 20 per cent more than NMW. This will allow individuals to make an informed choice to work or not based on what they can earn. Then if they choose to work at a quiet time when, due to low demand their earnings would be less than NMW, they should not then be able to bring a claim against the employer for breach of NMW.

Zero Hours contracts should not be banned but their use should have restrictions
The Review’s key message is that changes to working rights are needed to protect vulnerable workers from exploitation but not to the total detriment of the UK’s flourishing flexible labour market. As a result, an outright ban on the use of zero hours contracts was not recommended. Instead, it recommends introducing an hourly premium on the use of zero hours contracts and the right to request a guaranteed hours contract. Whilst there is no suggestion as to what the hourly premium might be, it could be similar to that proposed for gig economy employers (20 per cent more than NMW).

Increased costs and regulatory burdens
Whilst the Review stresses the need to limit the cost and regulatory burden on employers, it is highly unlikely this will be the result. In addition to the financial burden of Class 1 NIC, holiday pay and sick pay for some gig economy employers which currently treat staff as self-employed, the Review proposes many reforms to employment law. One was to remove employment tribunal fees for employment status claims. However, that has now been superseded by the recent Supreme Court decision resulting in employment tribunal fees for all employment claims being abolished.

For more information on how organisations could be affected by the Taylor Review and guidance on how to manage flexible workforce challenges, please contact Carolyn Brown.