The government has announced it will ‘take forward’ all but one of the recommendations made in last year’s Taylor Report. This has been heralded by the Director General of the Institute of Directors as, possibly, “the biggest shake-up of employment law in generations”. The questions are what will this mean for employers, and what can your company start doing now to minimise problems?
A step in the right direction
As Theresa May has said, the world of work is changing. In recent years, low paid self-employment and flexible contracts have risen and it has been estimated that there were 1.1 million people working in Britain’s gig economy and 1.2 million working as agency workers during 2017. These ways of working are not just impacting worker rights – use of non-standard employment models is also threatening collection of workplace tax, which is still the government’s largest source of revenue.
As such, policy makers argue that as modern day working practices continue to evolve, so too should the laws that protect workers’ rights – and the workplace tax regime.
What is most likely to happen in the shorter term?
Even before any legal changes, one thing that the publicity around this announcement will probably lead to is more employment status claims by gig, agency workers and zero hours workers relating to things such as holiday pay and national minimum wage (NMW). Employers need to prepare for this.
It is likely the first legal changes will focus on rights to information, measures to increase awareness of rights, and obligations on employers to be report publicly about how they engage different types of worker – much like in the style of a gender pay gap report, but for types of employment model instead. In particular, the government has proposed that all workers should have the right to a statement of day-one rights, including holiday and sick pay entitlements and the right to a payslip. Agency and gig workers will also be provided with a clear breakdown of who pays them and any costs deducted from their wages.
The government has additional plans to ‘go further’ than the Taylor Report in a number of respects such as the right to request fixed hours contracts to all gig, zero hours and agency workers. This, the government asserts, will provide more financial security for those on flexible contracts. That legislation, along with proposals to give government departments the power to enforce holiday pay and the like, might take longer to finalise.
So, will “millions benefit from enhanced rights”?
Potentially. However, most of the recommendations will be subject to consultations on:
- enforcement of employment rights;
- agency worker rights;
- measures to increase transparency in the UK labour market; and
- employment status – which will examine options, including new legislation to make it easier for both the workforce and businesses to understand whether someone is an employee, worker or self-employed and to determine the rights and tax obligations which apply to them.
These consultations cover a huge amount of ground, and are set to close by June this year. We believe that, in many areas, there will then need to be further consultations before any legislation is finalised.
Getting as far as draft legislation will not be easy. Governments around the world have been trying to simplify employment status tests for years and none have yet found the perfect solution. If this were an easy problem to solve it would have been solved years ago. In the words of the Chartered Institute of Taxation in 2015, “Employment status is a complex and wide-ranging subject…and if we did manage to solve it we should immediately move on to world peace as we’d clearly be on a roll”. As such, the more ground-breaking Taylor recommendations may not come into effect for some time.
And the elephant (not) in the room is tax; most experts agree that tax efficiency has been one of the key reasons for the growth in the gig economy. However, the government has ruled out levelling NICs in relation to employment and self-employment. The tax advantages of self-employment therefore seem likely to drive many into this way of working, whatever employment law changes are introduced.
What does this mean for employers?
Theresa May is, however, committed to this initiative. The reforms play a vital part in the government’s long-term plan to build a Britain fit for the future – helping businesses create better, higher-paying jobs across the country. If the UK wants to be seen as “one of the first countries to address the challenges of the changing world of work in the modern economy”, the Taylor recommendations are surely one small step in the right direction.
Employers, therefore, should not put the government’s ‘Good Work’ agenda in the ‘wait to see what happens’ box. The likely developments should form part of their workforce planning.
As such, employers should start assessing which types of non-employed workers they use across the business, and in their supply chain, and analyse what likely extra costs will apply to each type of worker if the Taylor recommendations are adopted. Where self-employed workers are used in the supply chain, businesses should review the extent of control they exercise over how they operate. They should then assess the feasibility of new ways of working with people to preserve tax efficiency and prepare for new laws which will make them liable for tax and employment obligations where that control exists. Another preparatory step will be to look at whether they may, in the future, be able to offer at least some of their ‘regular’ agency and zero-hour workers guaranteed hours.
By taking action now, employers will be better prepared for the time when the government’s initiative comes into effect.