CIPD Voice: Issue 22


The issue of how to simplify employment status is an area of public policy that has to some degree been kicked into the long grass over the last year, but it remains a problem that needs to be resolved.

It was central to Matthew Taylor’s Review of Modern Working Practices which considered how to define more clearly who is covered by the three main types of employment status; self-employed, worker and employee and consequently the employment rights they are entitled to.

What’s the problem?

The review heard evidence that the current employment status framework and the rights of individuals under each status are difficult to understand, especially for people working in atypical ways. A key issue is the difficulty defining clearly who falls under which category, with a grey area existing over how to distinguish between self-employed and worker status in particular.

This confusion is at the heart of a number of employment disputes involving companies such as Hermes and gig economy firms Uber and Deliveroo. They have faced claims their couriers or delivery drivers are workers not self-employed contractors and consequently are eligible for certain rights such as the National Minimum Wage and holiday pay.

How much control an organisation has over an individual, whether they need to do the work personally or could be substituted and whether there is mutuality of obligation are all among the criteria weighed up by the courts in making decisions.

In a number of instances, the courts have found in favour of individuals claiming they are workers and not self-employed. Uber is taking its challenge against a ruling that its drivers are in fact ‘workers’ all the way to the Supreme Court in a case that will be heard during 2020.

The issue of employment status is not just a problem in terms of confusion over who is self-employed, a worker or an employee for employment purposes but also because it is not aligned with the tax system which only recognises self-employed and employee status. Anyone who seems to be in the middle must be fitted in to one or other of the ends of what could be viewed as a continuum.

The situation is further complicated by a change in IR35 rules making employers responsible for determining people’s tax status rather than individuals. The new rules, which already apply to the public sector, will extend to medium and large organisations in the private and voluntary sectors from April this year. IR35 is designed to reduce tax avoidance by contractors who HMRC believe to be 'disguised employees' – people who work in a similar way to employees but bill for their services via their limited companies to make their business as tax efficient as possible. To combat this, IR35 rules are designed to ensure that contractors working via their limited companies, deemed to be doing the same work of an employee, pay broadly the same tax. An employer will now have to determine this by applying an employment test to each case, which is based on the actual working practices, rather than any contract.

However, the change in assessment from the individual to the employing firm has raised lots of concerns among employers and self-employed contractors alike. Organisations report they face significantly increased bureaucracy and costs in determining employment status for tax purposes, while large numbers of genuinely self-employed people risk being inaccurately classified as employees and forced to pay additional tax and NI contributions without necessarily benefiting from the associated employment rights.

How can the system be improved?

Taken together issue of employment status and who qualifies for which category appears to be pretty unsatisfactory both from an employment and tax perspective, with too much room for different interpretations creating confusion for both employers and individuals.

Following his review, Matthew Taylor recommended that renewed effort should be made to align the employment status frameworks for the purposes of employment rights and tax to ensure that the differences between the two systems are reduced to an absolute minimum. The Government agreed in its Good Work Plan published in December 2018 that this was the right ambition and committed to bringing forward detailed proposals on how the frameworks could be aligned.

In order to help inform the debate over how this might be achieved, the CIPD is kicking off a project on the future of employment status. A key proposition we will be exploring is whether there is a case for the abolition of ‘worker’ status in order to simplify decisions over status for employment purposes and to align with the tax system.

Is there a case to remove worker status?

Removal of worker status could make it easier for the courts to decide a person’s employment status as making a distinction between self-employment and employee is arguably easier to determine than having to also decide if an individual might fall into the ‘half way house’ worker category.

A number of employment law experts the CIPD has spoken to believe there is a strong case to abolish worker status to simplify the system and that the benefits would outweigh the many disadvantages of the status quo.

In addition, according to research by The HR Dept, which provides HR support to small and medium size firms via a franchise model, most owner managers don’t recognise or understand worker status and only use either self-employed contractors or engage people as employees.

Many small and medium business owners rely on advice and guidance from trusted business advisors such as their bank manager or accountant who are also too often unaware of the complexities of employment status and will often direct towards engaging on a self-employed basis, oblivious to the worker status risk.

This view is supported by data from the CIPD’s 2019 Summer Labour Market Survey of 2,000 employers which found that, just 11% of micro firms and 21% of small firms report they employ one or more people on worker status. If the vast majority of employing businesses represented by small firms in the UK don’t understand or use worker status is it really playing a useful purpose?

Overall, CIPD research finds that 35% of employers report they use worker status to employ anyone, while 51% say no and 15% don’t know. Among organisations that use worker status, by far the biggest reason reported by employers was to ‘improve workforce flexibility’, for example, through the use of temporary workers. This was followed by ‘to fill gaps while permanent staff are appointed’, cited by 40% of employers and ‘because some people prefer this arrangement’ such as students who want casual roles, reported by 24% of employers.

Among employers that use worker status, just under half (49%), representing about 17% of all employers, say that the removal of worker status would cause any difficulties, with the biggest concerns being reduced workforce flexibility and that it would be harder to recruit casual or temporary staff. Just over a third of employer that use worker status don’t foresee that its removal would create any difficulties, while 17% don’t know.

To get further under the skin of the issue, the CIPD is holding an expert roundtable in early March involving employment law experts and senior HR practitioners to discuss in more detail options for employment status reform, including abolition of worker status.

We'll also be conducting in-depth interviews with HR practitioners from different sectors and other key stakeholders to consider the pros and cons of removing worker status including any negative unintended consequences. One issue might be increased costs associated with giving temporary and agency workers employee status and the full employment rights this would entitle them to. Understanding how big a problem this might be for some employers is one of the issues we will be investigating.

Our research will inform a policy discussion paper which will make recommendations to the Government. If you are interested in this project and would like to get involved, please email me directly at b.willmott@cipd.co.uk.

Ben Willmott

Ben Willmott, Head of Public Policy

Ben leads the CIPD’s Public Policy team, which works to inform and shape debate, government policy and legislation in order to enable higher performance at work and better pathways into work for those seeking employment. His particular research and policy areas of interest include employment relations, employee engagement and wellbeing, absence and stress management, and leadership and management capability.

Top