Taylor review: Employment status under the microscope

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The government’s response to the Taylor Review of modern working practices will shake-up the UK labour market. Although, not quite yet.

The Taylor Review was an inquiry into the issues and consequences of flexible working -- the gig economy -- on Britain’s workers. The review culminated in a report entitled ‘Good Work’, which made 53 recommendations.

The government has accepted all but one of them in its response. The rejected proposal being a rehash of the Chancellor’s now abandoned plan to reduce the difference between the National Insurance contributions of employees and the self-employed.

Changes afoot

But self-employment remains under the microscope. The government wrote in its response that “It should be easier for individuals and businesses to determine whether someone is an employee, a worker, or self-employed” and it “is committed to improving clarity and certainty in this area”.

The government has announced it will now consult on the best way to offer clarity on how to classify employees. Specifically, the Taylor Review is centred on a clearer definition of who is and isn’t self-employed.

This isn’t a new issue. “This confusion has existed for a hundred bloody years,” said RSM’s head of employer tax Bill Longe. But the gig economy has added a sense of urgency to this old dilemma.

The rise of the gig economy has spurred the number of self-employed workers in the UK, who now number around five million people. Platforms like Deliveroo, Uber and DPD ran under a model where ostensibly self-employed people used their technology to do jobs.

Since these people were self-employed, these gig economy firms said, they didn’t have to offer benefits. No holiday pay, minimum wage, sick leave. It didn’t take long for this to spiral into numerous labour disputes as gig economy workers argued they were, in fact, employed.

The Taylor Review’s solution was to alter the third employment category of worker, changing it to ‘dependent contractor’. As the Good Work report stated: “Government should retain the current three-tier approach to employment status as it remains relevant in the modern labour market, but rename as ‘dependent contractors’ the category of people who are eligible for worker rights but who are not employees.”

What’s your status?

The emphasis is to demarcate clear boundaries between the three employment categories. That means a new test will have to be developed for dependent contractors. The government is consulting on it but they have said: “In developing the test for the new ‘dependent contractor’ status, control should be of greater importance, with less emphasis placed on the requirement to perform work personally.”

The worry is that in its attempt to tackle “false self-employment”, as the Taylor Review termed it, this new test will make it tougher for those who are genuinely and happily self-employed. “Effectively, to not be an employee or a worker, to be considered self-employed, you’d have to pass this statutory test,” Alastair Kendrick, an employment tax adviser told AccountingWEB.

“If you look at the stats, there’s massive growth in the number of self-employed people. This test is effectively to curb that number back and put it back into proportion.”

It’s an assertion that RSM’s Longe also makes. “If you remember the Chancellor’s plan to increase the NI paid by the self-employed, for which he was firmly put back and the measure was dropped before the election,” said Longe.

“They do say in that booklet they’ve got no intention to change the way the self-employed are taxed; what they don’t say is whether the dependent contractor would be taxed in the same way as an employee. They are perhaps trying to get to the same result they tried to reach a few years ago, but doing so in a slightly different way.”

As Kendrick points out, the Chancellor’s attempted land grab in 2016 only succeeded in encouraging the formation of private service companies. “We had people anticipating going back on payroll being encouraged by agencies and third parties to set up limited companies,” he said.

“Unless they squeeze that with the same test they have in the public sector, people will just go that route. It’s like a pincer effect. Otherwise when you try and squeeze people into employment, they’ll find some other route that’s attractive to them or their agency.”

The impact on the bottom line

The new dependent contractor comes with another big consideration: cost. “While there may be benefits in terms of greater clarity, these changes will inevitably result in increased costs and an increase in administrative burdens, despite government assurances to the contrary,” said Longe.

The fact is if a self-employed person is reclassified as a dependent contractor, the cost of engaging the person is increased. “That’s going to be an add-on cost that you’ll need to factor into your finance model,” Kendrick explained.

“If I’m forced to take these people on as employees because of the status test, I’ve got to pay them their employment rights and I’ve also got to pay employers NI at 13.8%. That’s an add-on cost at or around 25% of their current base. And that’s a conservative 25%.”

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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09th Feb 2018 14:02

Re “If I’m forced to take these people on as employees because of the status test, I’ve got to pay them their employment rights and I’ve also got to pay employers NI at 13.8%. That’s an add-on cost at or around 25% of their current base. And that’s a conservative 25%.”

Well duh. That's why government want to stop fake self employment.

However I don't think creating another class will help, HMRC just need to get stuck in on current blatant employees, such as delivery staff, who are not really self employed under CURRENT rules, it just they seem to be very very laxly applied. Roll back 15-20 years, and we used to get all sorts of cases of being asked to put people on the payroll. Eg we had a gardener at a factory site looking after the grounds, who work when he wanted with his own tools and had other customers. We won, but only just.

They have a job paid on piece rate. It ought to be obvious this is the case.

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10th Feb 2018 17:21

99.9% of people who falsely claim self employment have no concept of what being self employed is actually about, let alone the wherewithall to be it.

Essentially being on a zero hour contract does not self employment make. In fact - it's pretty much the opposite.

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By DJKL
12th Feb 2018 11:43

"And if you tolerate this then your children will be next"

We are already re say the NHS down the slippery slope where what I would consider outwith IR35 is being caught by misapplied tests.

A client currently has a stand off with an NHS Trust over work he did over 2 days and their refusal to pay his company outwith IR35. Strangely he acts for two different NHS bodies yet only one has this issue; the work is the same re both (audit) yet one interprets the rules differently from the other.

This is not employment, he audited (and signed a report stating same with PI etc on the line) a drugs related process, but pragmatically if he wants to get paid for the work done he likely needs to jump through their hoops.

Then he hopefully thereafter tells them to stuff the work in future as frankly it is a minuscule proportion of his fees anyway.

So that research lab under the NHS which needs X,Y,Z signed to be able to release say radioactive isotopes for testing the next wonder druf they are researching will whistle, they are either going to have to employ someone in house to sign off the batches (with appropriate qualification and experience) who will twiddle their thumbs the rest of the time or they may, if they are lucky,find another company willing to act.

So, if similar tests, decided by the payer, get extended to the private sector how long before that accounting work you did for that client, when you went to their office to do the work there as you needed access to their records and used their equipment as you were correcting their debits and credits on their system, suddenly becomes employment?

The fact that you have 50 other clients does not matter, the party paying you does not know that, he/she is applying the tests as he/she sees fit and erring on the side of caution.

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15th Feb 2018 10:01

If NI were subsumed into income tax then all this stupidity would go away. The government wants more tax acquired simply and reliably, so why not shake up the whole system properly and have a simple tax system fit for a modern age? The workers can then decide whether they want to be employees or not. Get rid of employers' NI and there will not be a tax on employment. The government can make tremendous savings by reducing the complications of NI - staff, systems, buildings, etc. NI is tremendously expensive to administer within business (as are IR35 rules) so this would save the country administrative costs. It is the NI which is complicating the issue and no-one has the political bottle to deal with it.

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15th Feb 2018 10:47

All this because Gordon Brown got incompetent.
I've made this clear many times. Employment status is a commercial decision not one for HMRC to tinker with. Once you get rid of ers nic (which should never have been there anyway) most of the issues will be resolved and we can get rid of IR35. There can never be any clear cut, black and white on employment status because there are so many variations. Most small business don't want to employ because they can't afford to, but could offer an unemployed person work so that the state doesn't have to pay.

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to johnjenkins
15th Feb 2018 21:33

Agree John. But how do we get rid of Employers NICs? This is the £60bn elephant in the room. Can't see how it can be done in one go - so my only thought is to do so the same way you eat an elephant - in small manageable chunks. Reduce it bit by bit each year, whilst increasing other taxes. It may take 10 years, but then it's done. Any other ideas?

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to davechaplin
16th Feb 2018 09:35

It's very easy Dave.
We get a chancellor with a pair of balls to get rid of all the crap in the tax system that's causing time consuming and money costing waste. Oh yes I include MTD.
All tax should be done through basic rate (get rid of higher rates). As long as the personal allowance is adequate then all governments would be elected on their merits not incomprehensible broken promises. Oh yes and please, pretty please with knobs on, TM, get us out of the EU NOW so that we can start a new era.

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to davechaplin
16th Feb 2018 11:39

And how much does it cost HMG to administer NICs? This cost will also disappear if we get rid of it completely. The cost of the computer systems (upgrading them each year), staff costs, staff overheads (just think of the staff pensions), compliance officers (NIC and IR35), etc., also add up to a fair total. By taking it in chunks you have to keep the admin regime running as well. No, get rid of it in one go. If it is timed to coincide with other major changes, so much the better.

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20th Feb 2018 14:03

Fully agree we (?)(they!) should get rid of the NIC difference to start with which will eliminate IR35 issues, and then work on cancelling NIC which will (a) remove the need for dividend tax (b) but will remove the NIC savings that pensioners currently have! Like a lot of things, makes sense, but not good for votes!

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to Chris Pittock
20th Feb 2018 14:25

I don't think it matters what the Government do now, it won't affect the next GE. Landlords up in arms, dividend tax to go up, Brexit not going anywhere. I think the only thing that will save another coallition will be Rees-Mogg.

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