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Keeping the status quo: the Government confirms that it will not reform the law on employment status

The Government has published a response to its 2018 consultation on the UK’s current employment status framework.

The Government’s response confirms that it will not reform this complex area of the law. Businesses must therefore continue to use the current framework to determine the correct employment status of individuals providing services.

The current framework

The UK has a three tier employment status framework: employees, workers and self-employed contractors. The determination of an individual’s employment status is important as it affects the rights that individual is entitled to and the obligations the business owes to that individual.

At one end of the scale, employees benefit from a suite of employment rights and protections (subject to achieving the necessary qualifying service for certain rights). At the other end, self-employed contractors have no employment rights as they are not employed. Somewhere in the middle are workers, who are entitled to some (but not all) employment rights and protections, such as the right to paid holiday.

The determination of an individual’s employment status under the current framework can be difficult for businesses as the boundaries between the three statuses are not clear cut and the tests to determine status are largely set out in case law and are highly fact specific in any given case.

It can be particularly difficult to establish whether an individual is genuinely self-employed or a worker, as evidenced by the influx of case law on this topic in the past few years. Last year, several Uber drivers reached the Supreme Court and successfully argued that they were workers and had been miscategorised as self-employed contractors. Even more recently, a claimant who had been engaged by Pimlico Plumbers Ltd on a self-employed basis successfully claimed worker status and was awarded £74,000 in respect of unpaid holiday accrued over several years. This case demonstrates the importance of ensuring that individuals are engaged on the correct basis as it can be a costly mistake to miscategorise a worker or employee as a self-employed contractor. However, this may be easier said than done due to the complexity of the law in this area.

Whilst tax issues are outside of the scope of this article, businesses should also note that there can be tax consequences for miscategorising a person as self-employed. The waters are muddied further for businesses by the fact that the tax framework has only two employment statuses (employees and self-employed contractors) and worker status does not exist as a separate concept for tax purposes.

Consultation and response

The consultation was launched in response to the Taylor Review which identified that the tests for determining employment status are unclear and questioned whether employment and tax statuses should be aligned.

A range of businesses responded to the consultation and the majority agreed that there are issues with the current framework, including that the current tests for employment status and their application are complex which affects individuals and businesses seeking to determine employment status. However, there was no consensus on how the current framework could be improved.

The Government’s response confirms that it will not legislate to clarify the tests for employment status at this time. The Government’s rationale for this decision is that it considers the benefit of such reform is outweighed by the potential disruption it might cause, particularly whilst businesses are recovering in the wake of the Covid-19 pandemic.

Practical impact

As the Government will not reform the law on employment status in the near future, there will be no change to the current framework. Businesses must therefore continue to use the existing tests to establish an individual’s employment status.

The Government has released guidance to assist employers to determine accurately employment status. It has also released guidance for individuals to help them understand their employment status and therefore any employment rights. The new guidance does not change the law or impose any new legal obligations but sets out information on the current framework to assist employers to determine the correct status.

As cases such as Pimlico Plumbers demonstrate, it is important for businesses to identify the correct employment status of each person working for them so that they can comply with their legal obligations to those people. Businesses should take note of the new guidance but seek legal advice if there is any uncertainty. In addition, businesses should consider taking advice to avoid any potential tax implications due to miscategorising a person’s employment status.

Contact our employment solicitors

If you would like to learn more about how we can support your business, please get in touch with a member of our Employment & HR team.


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