The Taylor review of modern working practices has now been published following increased focus on the ‘gig economy’ in recent months. It contains a number of thoughtful proposals aimed at creating an environment for ‘fair and decent work’, encompassing changes to employment law and the tax and national insurance contributions (NICs) position. There is an acknowledgement of the need for more consistency in the taxation of work: in other words, levelling out the tax and NICs position for the self-employed and employed. A key recommendation is that employment for tax purposes should include both employees and dependent contractors. If implemented, some of these proposals could have wide-ranging implications for businesses and workers.
The long awaited Taylor review of modern working practices (‘the review’) was published on 11 July and is underpinned by three key aims: (i) to tackle exploitation and potential exploitation at work; (ii) to clarify the distinction between workers and the self-employed; and (iii) to better align labour market incentives with modern industrial strategy and broader national objectives.
The review covers a lot of ground including quality of work and career progression, the state of the law, labour flexibility, responsible business, fairer enforcement and tax distortions. It makes a number of recommendations and sets out seven principles which it believes should apply in setting the standard for the way we work in the 21st century.
The government, business, workers and other stakeholders will all need time to reflect on the findings of the review. In this article, we examine a number of the key recommendations and their implications from an employment law and tax perspective.
The review suggests that the term ‘worker’ be replaced in employment law by ‘dependent contractor’. It also proposes that the fairly brief definition of worker found at s 230(3) of the Employment Rights Act 1996 be expanded to take account of recent case law and best practice, so that the position is clearer, particularly the distinction between workers and the self-employed. And it advocates that secondary legislation and guidance should be used to provide more detail. The idea is to be much clearer in terms of the people we are looking to protect, particularly lower paid gig economy workers.
This will be no easy task as determination of status can be a notoriously grey area. It is also suggested that individuals should have access to an online tool, similar to HMRC’s employment status indicator, to see where they stand for themselves. Although, the question of how the two would interact needs further consideration.
It is interesting that the review recommends that, when considering who falls within the dependent contractor status, there should be more emphasis on control rather than personal service and the ability to substitute. The challenge for any new employment status test will be the ability to cope with further developments in technology and working practices that could further blur the lines. Not easy!
In line with the review’s aim to introduce clarity, the current requirement to provide a written statement of particulars of employment to employees would be extended to anyone who falls within the new definition of dependent contractor.
There is also a recommendation that employers should be obliged to self-declare the status of individuals when taking people on, and the statement of particulars may be the best place to do this. Another interesting proposal is that it should be for a business to show that an employment relationship does not exist, rather than the individual to show that it does. We think this could tie in quite neatly to the self-declaration requirement, although, as noted, the analysis may not always be straightforward.
The review goes on to recommend that individuals should be able to get a free, formal determination of their employment status without having to pay employment tribunal fees, so that they know whether they can bring particular legal claims, such as concerning unfair dismissal or discrimination. There is clearly an advantage to this approach but some parameters would need to apply to avoid potential misuse and an unduly burdensome process.
It also suggests that existing legislation be strengthened to make clearer the information that should be provided to agency workers before they accept work. In particular, on rates of pay, who is responsible for paying the worker and the application of pay as you earn (PAYE) and NICs. At the moment the review concludes that, whilst most businesses do this, ‘unscrupulous providers can bury important information in the small print of long contracts’. It is certainly true that HMRC is taking an increasing interest in the area of employment intermediaries and whether PAYE/NICs have been correctly accounted for.
A key takeaway from the review from a tax perspective is the acknowledgement that there is a pressing need for more consistency in the taxation of work: in other words, levelling out the tax and NICs position for the self-employed and employed. In addition, it considers that for tax purposes, being employed should mean being either an employee or a dependent contractor. Agency workers are already brought into the PAYE/NICs net via a gateway resting on supervision, direction or control and so care would be needed if this route was pursued to harmonise, rather than complicate, the status quo.
The review also suggests that tax tribunal and employment tribunal status rulings should apply across jurisdictions so that, for example, where a tribunal finds that an individual is an employee for tax purposes, that decision is also binding for employment law purposes. This would be a significant shift from the current approach, but it makes sense if we are trying to simplify processes.
The review recognises that the gig economy and the use of technology platforms provides people with greater freedom, compared to traditional employment models, over when they work. That said, it also notes that the national minimum wage (NMW) legislation is there to protect the vulnerable and that it should also play a meaningful role there too. The proposal here is to adapt the ‘piece rate’ provisions in the NMW legislation, while at the same time maintaining the flexibility inherent in the gig economy for both businesses and individuals.
The review notes that a platform would be needed to apply the piece rate rules and use data to model, understand and demonstrate how the likely demand for individual jobs translates to an hourly rate. This is so people know in advance that in periods of low demand, the corresponding hourly rate would be that much less. That said, building in regional and time of day fluctuations, there would be a fair bit for the platform operator to factor in – maybe the technology of the larger platform operators could cope but it may be challenging for others.
A further recommendation relating to the NMW is that the Low Pay Commission should be asked to consider the impact of the introduction of a new, higher NMW rate for hours that are not guaranteed as part of a contract, e.g. a zero hours contract. This sounds sensible though it could result in businesses re-assessing their workforce structure and changing their operating model, possibly moving to a shift system and so losing flexibility for business and individuals.
Where certain individuals have been in post for 12 months there is a proposed right for agency workers to request a direct employment contract with their end user. Also for zero hours workers to request a contract that guarantees hours which better reflect the actual hours worked over the last 12 months. This would provide individuals with greater certainty on their hours and pay, albeit business would have correspondingly less flexibility.
There is support in the review for the trend towards self-reporting and self-regulation by employers, such as the recently introduced rules on gender pay gap reporting. In this respect, it recommends requiring companies to be more transparent about their workforce structure. This might take the form of declarations on: (i) the number of employees, dependent contractors and self-employed individuals engaged by the business; (ii) how it uses agency workers; and (iii) the number of requests made (and agreed) for permanent positions by agency workers etc. This approach would certainly add teeth to what may otherwise be regarded as mere aspirations.
The importance of good employee relations is also emphasised. The review includes a broad recommendation that the scope of the existing Information & Consultation Regulations, which focus on the ‘voice’ in the workplace, should be extended to increase levels of workforce engagement. At the moment their application is restricted to organisations with 50 or more employees, and the suggestion is that fewer restrictions apply so they become more relevant. Certainly there is more active involvement by workers through Workers Councils and other employee representatives in other European countries than the UK.
The review is clear on its position on the tax differential that currently applies between employees and the self-employed. On this it says that ‘the review considers this situation is not justified, or sustainable, nor is it conducive to the goal of a good work economy’. And it goes on to add that ‘the differences in the tax system create incentives for both the individual and the company to move towards a self-employment model’.
In this respect it approves of the chancellor’s proposed reform to more closely align the main class 4 self-employed NIC rate and the employee class 1 NIC rate as set out in the Spring 2017 Budget – and then withdrawn amid questions of whether it breached commitments in the Conservatives 2015 manifesto. This being on the proviso, as proposed in the Spring Budget, that there is continued movement to align the (relatively few) remaining areas of difference around entitlement to state benefits. We agree this is the right approach, albeit the government now appears to have decided not to move forward with these proposals.
And then there is the key issue of employer’s NIC, which at 13.8% of an employee’s pay (above the secondary NIC threshold) is a significant cost to business in taking on employees, but does not apply in engaging self-employed labour. Here the review says that there is a case ‘for moving to a more equal treatment of self-employment: it follows that there is a case for companies … to contribute more to the overall NI payments made by the self-employed, in the same way as they do for employees’.
But with increasing automation and offshoring there is already significant downward pressure on jobs and wages; employer’s NIC does not help and we believe imposing something similar in relation to the self-employed may be counter-productive.
An alternative approach would be to decouple employer’s NIC from labour costs as a whole and instead raise an equivalent amount via a levy on day-to-day business operating costs (see ‘Time for a different approach on employer’s NIC?’ Tax Journal, 30 June 2017). This would level the playing field between the employed and self-employed as well as ensuring the exchequer revenues will be unaffected notwithstanding increasing automation and offshoring.
Another of the recommendations contained in the review is that the government should consider accrediting a range of platforms designed to support the move towards more cashless transactions, thereby supporting individuals in paying the correct amount of tax. This also chimes with the government’s aims for making tax digital and the use of third party information in this regard. It is indeed intriguing to imagine a future where ‘cashless platforms’ report data directly to taxpayers’ accounting software for onward submission to HMRC and then pre-population of digital tax accounts.
The Taylor review is a well written, thorough and thought-provoking piece of work. The challenge now is for the government to take forward the necessary changes without imposing undue burdens on business.
The review sets out a framework around seven principles which encompass the end-point of what it sees as ‘good work’. These bring together all the issues discussed above (together with a number of others) and the goal of ‘fair and decent work with realistic scope for development and fulfilment’.
There is a lot here, encompassing employment law, good practice and tax, and there is still much to digest, discuss and debate. But we hope that Matthew Taylor’s report does not simply gather dust or get stuck in a backlog of bureaucracy and approvals and that it results in some tangible changes. We shall see. The full report is available at bit.ly/2udwhLx.
The Taylor review of modern working practices has now been published following increased focus on the ‘gig economy’ in recent months. It contains a number of thoughtful proposals aimed at creating an environment for ‘fair and decent work’, encompassing changes to employment law and the tax and national insurance contributions (NICs) position. There is an acknowledgement of the need for more consistency in the taxation of work: in other words, levelling out the tax and NICs position for the self-employed and employed. A key recommendation is that employment for tax purposes should include both employees and dependent contractors. If implemented, some of these proposals could have wide-ranging implications for businesses and workers.
The long awaited Taylor review of modern working practices (‘the review’) was published on 11 July and is underpinned by three key aims: (i) to tackle exploitation and potential exploitation at work; (ii) to clarify the distinction between workers and the self-employed; and (iii) to better align labour market incentives with modern industrial strategy and broader national objectives.
The review covers a lot of ground including quality of work and career progression, the state of the law, labour flexibility, responsible business, fairer enforcement and tax distortions. It makes a number of recommendations and sets out seven principles which it believes should apply in setting the standard for the way we work in the 21st century.
The government, business, workers and other stakeholders will all need time to reflect on the findings of the review. In this article, we examine a number of the key recommendations and their implications from an employment law and tax perspective.
The review suggests that the term ‘worker’ be replaced in employment law by ‘dependent contractor’. It also proposes that the fairly brief definition of worker found at s 230(3) of the Employment Rights Act 1996 be expanded to take account of recent case law and best practice, so that the position is clearer, particularly the distinction between workers and the self-employed. And it advocates that secondary legislation and guidance should be used to provide more detail. The idea is to be much clearer in terms of the people we are looking to protect, particularly lower paid gig economy workers.
This will be no easy task as determination of status can be a notoriously grey area. It is also suggested that individuals should have access to an online tool, similar to HMRC’s employment status indicator, to see where they stand for themselves. Although, the question of how the two would interact needs further consideration.
It is interesting that the review recommends that, when considering who falls within the dependent contractor status, there should be more emphasis on control rather than personal service and the ability to substitute. The challenge for any new employment status test will be the ability to cope with further developments in technology and working practices that could further blur the lines. Not easy!
In line with the review’s aim to introduce clarity, the current requirement to provide a written statement of particulars of employment to employees would be extended to anyone who falls within the new definition of dependent contractor.
There is also a recommendation that employers should be obliged to self-declare the status of individuals when taking people on, and the statement of particulars may be the best place to do this. Another interesting proposal is that it should be for a business to show that an employment relationship does not exist, rather than the individual to show that it does. We think this could tie in quite neatly to the self-declaration requirement, although, as noted, the analysis may not always be straightforward.
The review goes on to recommend that individuals should be able to get a free, formal determination of their employment status without having to pay employment tribunal fees, so that they know whether they can bring particular legal claims, such as concerning unfair dismissal or discrimination. There is clearly an advantage to this approach but some parameters would need to apply to avoid potential misuse and an unduly burdensome process.
It also suggests that existing legislation be strengthened to make clearer the information that should be provided to agency workers before they accept work. In particular, on rates of pay, who is responsible for paying the worker and the application of pay as you earn (PAYE) and NICs. At the moment the review concludes that, whilst most businesses do this, ‘unscrupulous providers can bury important information in the small print of long contracts’. It is certainly true that HMRC is taking an increasing interest in the area of employment intermediaries and whether PAYE/NICs have been correctly accounted for.
A key takeaway from the review from a tax perspective is the acknowledgement that there is a pressing need for more consistency in the taxation of work: in other words, levelling out the tax and NICs position for the self-employed and employed. In addition, it considers that for tax purposes, being employed should mean being either an employee or a dependent contractor. Agency workers are already brought into the PAYE/NICs net via a gateway resting on supervision, direction or control and so care would be needed if this route was pursued to harmonise, rather than complicate, the status quo.
The review also suggests that tax tribunal and employment tribunal status rulings should apply across jurisdictions so that, for example, where a tribunal finds that an individual is an employee for tax purposes, that decision is also binding for employment law purposes. This would be a significant shift from the current approach, but it makes sense if we are trying to simplify processes.
The review recognises that the gig economy and the use of technology platforms provides people with greater freedom, compared to traditional employment models, over when they work. That said, it also notes that the national minimum wage (NMW) legislation is there to protect the vulnerable and that it should also play a meaningful role there too. The proposal here is to adapt the ‘piece rate’ provisions in the NMW legislation, while at the same time maintaining the flexibility inherent in the gig economy for both businesses and individuals.
The review notes that a platform would be needed to apply the piece rate rules and use data to model, understand and demonstrate how the likely demand for individual jobs translates to an hourly rate. This is so people know in advance that in periods of low demand, the corresponding hourly rate would be that much less. That said, building in regional and time of day fluctuations, there would be a fair bit for the platform operator to factor in – maybe the technology of the larger platform operators could cope but it may be challenging for others.
A further recommendation relating to the NMW is that the Low Pay Commission should be asked to consider the impact of the introduction of a new, higher NMW rate for hours that are not guaranteed as part of a contract, e.g. a zero hours contract. This sounds sensible though it could result in businesses re-assessing their workforce structure and changing their operating model, possibly moving to a shift system and so losing flexibility for business and individuals.
Where certain individuals have been in post for 12 months there is a proposed right for agency workers to request a direct employment contract with their end user. Also for zero hours workers to request a contract that guarantees hours which better reflect the actual hours worked over the last 12 months. This would provide individuals with greater certainty on their hours and pay, albeit business would have correspondingly less flexibility.
There is support in the review for the trend towards self-reporting and self-regulation by employers, such as the recently introduced rules on gender pay gap reporting. In this respect, it recommends requiring companies to be more transparent about their workforce structure. This might take the form of declarations on: (i) the number of employees, dependent contractors and self-employed individuals engaged by the business; (ii) how it uses agency workers; and (iii) the number of requests made (and agreed) for permanent positions by agency workers etc. This approach would certainly add teeth to what may otherwise be regarded as mere aspirations.
The importance of good employee relations is also emphasised. The review includes a broad recommendation that the scope of the existing Information & Consultation Regulations, which focus on the ‘voice’ in the workplace, should be extended to increase levels of workforce engagement. At the moment their application is restricted to organisations with 50 or more employees, and the suggestion is that fewer restrictions apply so they become more relevant. Certainly there is more active involvement by workers through Workers Councils and other employee representatives in other European countries than the UK.
The review is clear on its position on the tax differential that currently applies between employees and the self-employed. On this it says that ‘the review considers this situation is not justified, or sustainable, nor is it conducive to the goal of a good work economy’. And it goes on to add that ‘the differences in the tax system create incentives for both the individual and the company to move towards a self-employment model’.
In this respect it approves of the chancellor’s proposed reform to more closely align the main class 4 self-employed NIC rate and the employee class 1 NIC rate as set out in the Spring 2017 Budget – and then withdrawn amid questions of whether it breached commitments in the Conservatives 2015 manifesto. This being on the proviso, as proposed in the Spring Budget, that there is continued movement to align the (relatively few) remaining areas of difference around entitlement to state benefits. We agree this is the right approach, albeit the government now appears to have decided not to move forward with these proposals.
And then there is the key issue of employer’s NIC, which at 13.8% of an employee’s pay (above the secondary NIC threshold) is a significant cost to business in taking on employees, but does not apply in engaging self-employed labour. Here the review says that there is a case ‘for moving to a more equal treatment of self-employment: it follows that there is a case for companies … to contribute more to the overall NI payments made by the self-employed, in the same way as they do for employees’.
But with increasing automation and offshoring there is already significant downward pressure on jobs and wages; employer’s NIC does not help and we believe imposing something similar in relation to the self-employed may be counter-productive.
An alternative approach would be to decouple employer’s NIC from labour costs as a whole and instead raise an equivalent amount via a levy on day-to-day business operating costs (see ‘Time for a different approach on employer’s NIC?’ Tax Journal, 30 June 2017). This would level the playing field between the employed and self-employed as well as ensuring the exchequer revenues will be unaffected notwithstanding increasing automation and offshoring.
Another of the recommendations contained in the review is that the government should consider accrediting a range of platforms designed to support the move towards more cashless transactions, thereby supporting individuals in paying the correct amount of tax. This also chimes with the government’s aims for making tax digital and the use of third party information in this regard. It is indeed intriguing to imagine a future where ‘cashless platforms’ report data directly to taxpayers’ accounting software for onward submission to HMRC and then pre-population of digital tax accounts.
The Taylor review is a well written, thorough and thought-provoking piece of work. The challenge now is for the government to take forward the necessary changes without imposing undue burdens on business.
The review sets out a framework around seven principles which encompass the end-point of what it sees as ‘good work’. These bring together all the issues discussed above (together with a number of others) and the goal of ‘fair and decent work with realistic scope for development and fulfilment’.
There is a lot here, encompassing employment law, good practice and tax, and there is still much to digest, discuss and debate. But we hope that Matthew Taylor’s report does not simply gather dust or get stuck in a backlog of bureaucracy and approvals and that it results in some tangible changes. We shall see. The full report is available at bit.ly/2udwhLx.
