As part of their response to the 2017 Taylor Review of Modern Working Practices the government has opened a new consultation into Employment Status.

The aim is to provide certainty and clarity to individuals and businesses in respect of Employment Status.

The consultation follows The Taylor Review, it specifically does not include NIC or IR35.

The consultation document refers to there being three types of workers in law:

  1. Employee
  2. Self-employed
  3. A ‘Limb (b)’ worker.

For tax purposes only two are recognised: employed and self-employed.

The question of employment status is not clearly set out in legislation, relying instead on case law.

Where there is dispute, it is the responsibility of different courts (Employment tribunals and tax tribunals) to determine status for the purpose of employment rights.

Employment status can be a complex issue requiring individuals and business to interpret and apply tests from several case law precedents and an individual’s employment status can be inconsistent between employment rights and tax.

HMRC enforcement of employment status for tax purposes can be costly and time consuming for both HMRC and the businesses involved due to the fact-specific nature of the tests.

Employment status case law the core tests established are often known as the ‘irreducible minimum’ with the following main characteristics:

  • Mutuality of obligation; a commitment between the two parties. An employer’s obligation to provide work, or to pay for work done, and the employee’s obligation to perform that work.
  • Control; whether control, or the right to control exists over the individual.
  • Personal service; requires the individual to be obliged to personally provide their services.

Where these three characteristics are present:

  • The courts will consider other criteria relevant to the case that are consistent with a contract of employment or service, and make a decision based on the overall picture of the individual case.
  • There is no formula that the courts will use to determine if the test is met; they will consider the reality of the working relationship and ignore written documentation if it does not reflect this.

The consultation asks whether a codification of these principles is appropriate, how this should be dealt with, with a particular emphasis on what the various definitions and terms mean, and what the alternatives are.

The current Check Employment Status Tool (CEST) does not consider mutuality of obligation.

The large number of specific questions raised in the consultation (below) highlights the complexities of trying to deal with this area in one fell swoop and suggests that it may be some time before any definitive set of rules is available.

Comments on the consultation document should be sent to This email address is being protected from spambots. You need JavaScript enabled to view it. by 1 June 2018.

The specific questions are:

Q1: Do you agree that the points discussed in this chapter (those detailed above) are the main issues with the current employment status system? Are there other issues that should be taken into account?

 Q2: Would codification of the main principles (those outlined above) strike the right balance between certainty and flexibility for individuals and businesses if they were put into legislation? Why / Why not?

Q3: What level of codification do you think would best achieve greater clarity and transparency on employment status for i) individuals and ii) businesses – full codification of the case law, or an alternative way?

Q4: Is codification relevant for both rights and/or tax?

Q5: Should the key factors in the irreducible minimum be the main principles codified into primary legislation?

Q6: What does mutuality of obligation mean in the modern labour market? 

Q7: Should mutuality of obligation still be relevant to determine an employee’s entitlement to full employment rights?

Q8: If so, how could the concept of mutuality of obligation be set out in legislation?

Q9: What does personal service mean in the modern labour market? 

Q10: Should personal service still be relevant to determine an employee’s entitlement to full employment rights?

Q11: If so, how could the concept of personal service be set out in legislation?

Q12: What does control mean in the modern labour market? 

Q13: Should control still be relevant to determine an employee’s entitlement to full employment rights?

Q14: If so, how can the concept of control be set out in legislation?

Q15: Should financial risk be included in legislation when determining if someone is an employee?

Q16: Should ‘part and parcel’ or ‘integral part’ of the business be included in legislation when determining if someone is an employee?

Q17: Should the provision of equipment be included in legislation when determining if someone is an employee?

Q18: Should ‘intention’ be included in legislation when determining if someone is an employee in uncertain cases?

Q19: Are there any other factors that should be included in primary legislation when determining if someone is an employee? And what are the benefits or risks of doing so?

Q20: If government decided to codify the main principles in primary legislation, would secondary legislation: i) be required to provide further detail on top of the main principles; and ii) provide sufficient flexibility to adapt to future changes in working practices? 

Q21: Would the benefits of this approach be outweighed by the risk of individuals and businesses potentially needing to familiarise themselves with frequent changes to legislation?

Q22: Should a statutory employment status test use objective criteria rather than the existing tests? What objective criteria could be suitable for this type of test?

Q23: What is your experience of other tests, such as the SRT? What works well, and what are their drawbacks? 

Q24: How could a new statutory employment status test be structured?

Q25: What is your experience of tests, such as the Agency Legislation tests for tax, and how these have worked in practice? What works well about these tests in practice, and what are their drawbacks?

Q26: Should a new employment status test be a less complex version of the current framework?

Q27: Do you think a very simple objective or mechanical test would have perverse incentives for businesses and individuals? Could these concerns be mitigated? If so, how?

Q28: Are there alternative ways, rather than legislative change, that would better achieve greater clarity and certainty for the employment status regimes (for example, an online tool)?  (This is expressed as possibly something similar to CEST).

Q29: Given the current differences in the way that the employed and the self-employed are taxed, should the boundary be based on something other than when an individual is an employee?

Q30: Do you agree with the review’s conclusion that an intermediate category providing those in less certain casual, independent relationships with a more limited set of key employment rights remains helpful? 

Q31: Do you agree with the review’s conclusion that the statutory definition of worker is confusing because it includes both employees and Limb (b) workers? 

Q32: If so, should the definition of worker be changed to encompass only Limb (b) workers?

Q33: If the definition of worker were changed in this way, would this create any unintended consequences on the employee or self-employed categories?

Q34: Do you agree that the government should set a clearer boundary between the employee and worker statuses?

Q35: If you agree that the boundary between the employee and worker statuses should be made clearer: 

  1. Should the criteria to determine worker status be the same as the criteria to determine the employee status, but with a lower threshold or pass mark? If so, how could this be set out in legislation?
  2. Should the criteria to determine worker status be a selected number of the criteria that is used to determine employee status (i.e. a subset of the employee criteria)? If so, how could this be set out in legislation?

iii. Or, is there an alternative approach that could be considered? If so, how could this be set out in legislation?  

Q36: What might the consequences of these approaches be?

Q37: What does mutuality of obligation mean in the modern labour market for a worker?

Q38: Should mutuality of obligation still be relevant to determine worker status?

Q39: If so, how can the concept of mutuality of obligation be set out in legislation?

Q40: What does personal service mean in the modern labour market for a worker? 

Q41: Should personal service still be a factor to determine worker status? 

Q42: Do you agree with the review’s conclusion that the worker definition should place less emphasis on personal service?

Q43: Should we consider clarifying in legislation what personal service encompasses?

Q44: Are there examples of circumstances where a fettered (restricted) right might still be consistent with personal service?

Q45: Do you agree with the review’s conclusion that there should be more emphasis on control when determining worker status? 

Q46: What does control mean in the modern labour market for a worker?

Q47: Should control still be relevant to determine worker status?  

Q48: If so, how can the concept of control be set out in legislation? 

Q49: Do you consider that any factors, other than those listed above, for ‘in business in their own account’ should be used for determining worker status?

Q50: Do you consider that an individual being in business on their own account should be reflected in legislation to determine worker status? If so, how could this be defined?

Q51: Are there any other factors (other than those set out above for all the different tests) that should be considered when determining if someone is a worker?

Q52: The review has suggested there would be a benefit to renaming the Limb (b) worker category to ‘dependent contractor’? Do you agree? Why / Why not?

Q53: If the emerging case law on working time applied to all platform-based workers, how might app-based employers adapt their business models as a consequence? This refers to the Uber case where app based workers were held to be working when they have the app switched on, they are in the territory in which they are licensed to use the app, and they are ready and willing to accept tasks.

Q54: What would the impact be of this on a) employers and b) workers?

Q55: How might platform-based employers respond to a requirement to pay the NMW/NLW for work carried out at times of low demand?

Q56: Should government consider any measures to prescribe the circumstances in which the NMW/NLW accrues whilst ensuring fairness for app-based workers?

Q57: What are the practical features and characteristics of app-based working that could determine the balance of fairness and flexibility, and help define what constitutes work in an easily accessible way? 

Q58: How relevant is the ability to pursue other activities while waiting to perform tasks, the ability of workers to refuse work offered without experiencing detriment, requirements for exclusivity, or the provision of tools or materials to carry out tasks? 

Q59: Do you consider there is potential to make use of the data collected by platforms to ensure that individuals can make informed choices about when to log on to the app and also to ensure fairness in the determination of work for the purposes of NMW/NLW?

Q61: Would it be beneficial for the government to consider the definition of employer in legislation?

Q62: If the terms employee and self-employed continue to play a part in both the tax and rights systems, should the definitions be aligned? What consequences could this have?

Q63: Do you agree with commentators who propose that employment rights legislation be amended so that those who are deemed to be employees for tax also receive some employment rights? Why / why not?

Q64: If these individuals were granted employment rights, what level of rights (e.g. day 1 worker rights or employee rights) would be most appropriate?

Links

Response to Taylor review of Modern Working practices

Personal service companies

Employment status 

External links

BEIS: consultation: Employment status


 

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