Employment and tax status expert Rebecca Seeley Harris believes that although the Taylor Review highlights the problems around employment status and the gig economy, it fails to contribute much that might solve these deeply entrenched issues.
Although laudable in its intent, the review is fairly utopian in its outlook. The central tenet of the review is based on the ambition that all work in the UK economy should be “fair and decent”: yes it should, but it isn’t. We shouldn’t need to point out to companies that ‘good work’ should be on their agenda, but we do because the bottom line is always going to be more important.
The review focuses on tackling exploitation, increasing clarity in the law and, longer term, aligning the incentives driving the nature of our labour market with our modern industrial strategy, whatever that means. Seven steps to achieving this were set out, including that companies need to take ‘good work’ seriously and that there needs to be good corporate governance rather than more regulation.
One of the early recommendations was to rename the ‘worker’ otherwise known as the ‘limb b worker’ to the term of ‘dependent contractor’ – an oxymoron if ever I heard one. In addition, that there should be a clearer distinction between the dependent contractors and the genuinely self-employed. It also recommended that there needs to be additional protections for the dependent contractors and stronger incentives for firms to treat them fairly.
So, on the one hand, the review advocates good corporate governance but, on the other hand, it recommends incentivising companies to do the right thing. The review states that the goal of good work is something for which government needs to be held accountable, but for which we all need to take responsibility and includes a) a fair balance of rights and responsibilities; b) that the taxation of labour should be consistent across employment forms; and c) technology should be used to innovate and facilitate.
The review is some 116 pages long and includes 15 chapters, but it is only really the six middle chapters that offer any meaningful recommendations and even then, the recommendations lack sufficient detail. In my experience, you have to be very clear and concise in drafting recommendations, as ambiguities can be misunderstood or exploited or it simply is not detailed enough for a minister to act on.
One of the main areas of concern in employment status is the lack of clarity of the relevant law and this is addressed in Chapter 5. The review recommends that the government retains the three tier approach to employment status, for employment rights purposes, that of employee, worker and self-employed but, to simply rename ‘worker’.
Although the review mentions the tax position for employment status, which is binary, i.e. you are either an employee or self-employed for tax purposes, it doesn’t go into detail. The review was not given the remit to look at tax, which in some ways is unfortunate because it is the conflict between the three categories for employment rights purposes and the two categories for tax that are causing one of the main problems. In the recent Uber case, the individual was found to be a worker for employment rights purposes but will still pay tax as self-employed.
Taylor recommends that “employed for tax purposes” should naturally mean that an individual is either an employee or a dependent contractor, and then further recommends that where a tribunal determines that an individual is an employee for tax purposes, that decision is binding for employment law purposes.
We are, though, in danger of creating an underclass of employee: one that pays tax as an employee but isn’t one, with the added temptation for the employer to convert employees to this underclass.
The review also recommends that the basis for employment status should be enshrined in statute by using case law principles and that there should be a clearer distinction between an employee and a dependent contractor. The principle of control should have more prominence and the use of the right of substitution should be controlled.
OTS Employment Status Review
It also recommends that the employment status framework and the tax status framework are aligned and the differences between the two systems are reduced to an absolute minimum. Without wishing to sound too sanctimonious, we did all this at the Office of Tax Simplification in 2015, when we carried out a thorough review of employment status, unfortunately the OTS Employment Status Review was not referenced in the Taylor Review.
The problem we came up against at the OTS was how to devise a statutory test which would work for both employment and tax and whether it would be qualitative or quantitative. In the end, a statutory test was not recommended, because the devil is in the detail.
The OTS also recommended that there be a joint online tool for both tax and employment status, which was partially accepted in that the online digital tool for tax status has been updated to the new Employment Status Service. The online tool for employment rights purposes was rejected by BIS at that time.
Tax: ‘Incentives in the System’
Although Taylor did not have the remit to look at tax, the review considered tax in the “Incentives in the System” chapter. The review recommends that the national insurance contributions paid by the self-employed should be moved closer to parity with employees contributions. The same fateful advice that was given to the Chancellor before the last Budget, and which resulted in a U-turn only days later.
It also recommends that employers should be contributing for using self-employed labour, much like a payroll tax. It further recommends that government should seek ways in which the tax system might address the disparity between the level of tax applied to employed and self-employed labour. That’s a quick win, you only have to look at the OTS review of the Closer Alignment of Tax and National Insurance which, again was a thorough review of the subject published in November last year, under the expert guidance of John Whiting.
Zero and short hours contracts
On a positive note, the review does include some useful recommendations for those on zero and short hours contracts and for agency workers, although perhaps not so favourable for the agency.
It also recommends that umbrella companies should come under the remit of the Employment Agency Standards Inspectorate and that the ‘Swedish Derogation’ model in legislation should be repealed.
Along with recommending additional powers for HMRC to be responsible for policing sick pay and holiday pay violations, HMRC should also continue to work with providers to ensure that the self-employed have access to online tools that support compliance with the principles of Making Tax Digital, although MTD has now been significantly delayed.
The review does give some good insight into where government can use technology, especially to innovate and facilitate the move towards more cashless transactions to combat the hidden economy. And also to encourage digital solutions to support the self-employed to comply with their legal requirements.
If these solutions are to be provided by the company, it is an interesting recommendation because traditionally employers have shied away from providing too much assistance to their self-employed workforce because it may be a pointer to them being employed, for either tax or employment rights purposes.
The review seems overly focused on the so called ‘gig’ economy and the classification of the ‘worker’ category. The term ‘gig economy’ is not defined, so we don’t know precisely what companies are included. Is it just those technology platforms that provide work via an app? Because that would exclude a large proportion of the worker category of workforce such as Pimlico Plumbers and the couriers such as City Sprint.
Focusing on the ‘worker’ category is unfortunately to the exclusion of the other growing sectors of the non-employed workforce such as the professional sector and the use of personal service companies. All these sectors are intrinsically linked, and just as tax should have been included in the review, so should the other manifestations of providing labour.
Legislation has driven behaviour in this sector and as fast as the government blocks a loophole, someone finds a way around it. Without considering the whole of the non-employed workforce, both tax and employment rights and making it future proof, the solutions are just piecemeal.
So, in a nutshell, the Taylor review is advocating amongst others that there is a rise in NICs for the self-employed; that the employer should pay a payroll tax for engaging the self-employed; that there is a statutory employment status test; that a ‘worker’ should be taxed as a deemed employee but, not be an employee; that agency workers have the right to request a direct contract with the hirer after 12 months; and that the burden of proof for employment status is shifted from the individual to the employer.
Although the Taylor Review hasn’t contributed much more to the debate of employment status and the gig economy, it has at least reinforced or highlighted that there is still a problem that government needs to deal with.
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Rebecca is the UK's most prominent thought leader and leading expert in ‘employment status’ including IR35, off-payroll working and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as...