The gig economy employment status cases concerning companies such as Uber, Hermes couriers and Deliveroo have brought the concept of worker status and the connected legal rights and tax obligations for those workers to the fore.
Media attention has injected an ethical dimension into the debate, bringing an organisation’s treatment of its workforce under scrutiny and imposing reputational damage when the media judges that workers have been treated unfairly. It may be said that the tax benefits and employment rights cost savings to some companies of using a styled ‘self-employment’ status, now mostly rejected by the courts, were prioritised over the actual reality of that worker’s personal service contribution to the company.
As part of the government’s Modern Industrial Strategy, worker status and all categories of working status and the resulting tax treatment, are being reviewed. The government response to its consultation and potential legislative reforms are expected from 2019.
Legal rights status vs tax treatment categorisations
There are three legal rights status categories in the workforce:
|Worker||Those (who are not running their own business) who work under a contract with an organisation to do work personally. A worker – as with all statuses – is categorised not by the label given to them by the business they work for but by considering their and the business’s obligations to one another.
|Employee||Those working under a contract of employment or contract of service containing mutual rights and obligations to each other. Employees enjoy full statutory employment rights.|
|Self-employed||Those in business for themselves working under a contract for service.|
Critically, the statutory employment rights afforded to a person will depend on which legal rights status category a person is in.
There are two tax categorisations:
|Employed earner||Who broadly is a person employed under a contract of service and the same as the legal rights employee category.
|Self-employed earner||Where someone is engaged for services otherwise than as an employed earner. These individuals may be either in the worker or the self-employed category for employment rights purposes.
Why are these categorisations important to my organisation?
Understanding your workforce is important to ensure that it is made up of the optimal mix of correctly classified legal rights working types – employed, self-employed or workers – to achieve your business goals whilst at the same time managing your employment rights and tax risk.
It is also important to ensure that your employed staff have correct and properly completed employment contracts and worker engagement terms in place. This will mean that, if there are challenges from HMRC or from members of your workforce, you will be in the best place to defend your position.
What can I do now?
Given the media interest in this area and the potential government changes, it is sensible for organisations to examine their workforce arrangements and make sure that they have the right people in the right jobs with fit for purpose contracts in place which are correctly completed.
You can find further guidance on managing workforce contracts in our new forces at work guide and our worker status assessment can help identify any areas of concern.