Review of modern working practices
12 April 2018
This article was featured in the May 2018 issue of the magazine.
Helen Hargreaves MSc ChFCIPPdip, CIPP associate director of policy and membership, reveals the government’s response
Over the last few months we have written several articles about the progress of Mathew Taylor’s review of modern working practices. This high-profile review, which has attracted much media attention, explored the implications of new forms of work on employee rights and responsibilities and on employer freedoms and obligations. __The review also included views from workers and employers working in sectors such as the ‘gig’ and rural economies and manufacturing.
The aim was to fully understand the impact of modern working practices and how different labour markets work.
In July 2017, Good Work: The Taylor Review of Modern Working Practices (https://bit.ly/2q4SFCm) was published and duly discussed in most newspapers and television news programmes. The report was 116 pages long and covered a range of issues, including the implications of new forms of work, the rise of digital platforms and the impact of new working models on employee and worker rights, responsibilities, freedoms and obligations.
Amongst the 53 recommendations in the report were several key elements impacting on payroll.
Labour market framework
Perhaps the biggest and most challenging section of the review addressed the UK’s existing three-tier approach to employment:
employee – entitled to a full range of employment protections
self-employed – employment protections do not apply
worker – a relative safety net for those who are neither employees nor self-employed, ensuring that this group of more casual workers are protected by a set of baseline rights such as the national minimum wage (NMW).
The report acknowledged the confusion that exists between the two categories of people who are eligible for ‘worker’ rights, suggesting that it should be made easier to distinguish from one another by the introduction of a new name for those categorised as workers but who are not employees: dependent contractors.
The report concluded that the government should take a fresh look at the legislation to introduce clarity for both employers and individuals so that everyone can understand what employment status applies and what rights an individual is entitled to.
...a fresh look at the legislation to introduce clarity for both employers and individuals...
Aligning employment status and tax status
Few of us would disagree with the review’s finding that the lack of alignment between a worker and the self-employed in employment law and employed and self-employed in tax law is a source of confusion for organisations, individuals and the wider public. And whilst there are reasons why employment status legislation and tax status legislation are not at the moment aligned, the Taylor review was hopeful that the suggested approach to employment status would help to bring these two systems closer together and create clearer boundaries. In simple terms, the report suggested that when designing a new tool for determining status, the dividing line should be between the new dependent contractor status or self-employment so that being employed for tax purposes naturally would mean an individual is either an employee or a dependent contractor. And whilst self-employment is not an employment status, the government should aim for ‘self-employed’ to mean the same for both employment rights and tax purposes.
The issue which attracted most media interest was the concern that modern day flexibility of the workforce only benefits business and not the individual. Issues considered by the review included workers on zero-hours contracts, holiday pay calculations, and equal tax treatment for different forms of employment.
The report made recommendations which some regarded as being quite radical including the suggestion that the government should ask the Low Pay Commission in its next remit to advise on the impact of bringing in a higher NMW for hours which are not guaranteed in a contract. Businesses would still be able to offer zero- or short-hours contracts, or to request that an individual works longer hours than those guaranteed in their contract, but would have to compensate the most vulnerable workers (those on low wages) for the additional flexibility demanded of them.
Equal tax treatment
Whilst specific tax changes were outside the remit of the review, the report authors concluded that treating different forms of employment more equally in the tax system would be fairer, more economically efficient and support better quality work. It would also reflect the reality of the modern UK labour market.
Currently, the different rates of National Insurance contributions (NIC) in particular mean that a self-employed person doing the same work as an employed person can pay a different amount of tax or NICs despite receiving similar contributory benefit entitlements in return. The review considered that this situation was not justified, or sustainable, nor would it be conducive to the goal of a good-work economy.
Controversially perhaps, the Taylor review suggested that the principles underlying the proposed NICs reforms in the 2017 Spring Budget were correct. The level of NICs paid by both the employed and the self-employed should be moved closer to parity and the government should also address those remaining areas of entitlement – parental leave, in particular – where self-employed people lose out.
...placing the employment status tests developed by the courts into primary legislation
The government’s response
So how has the government responded to these 53 recommendations? Well, in time-honoured fashion, it has issued four consultation documents – unsurprisingly, given the scale of the task, each one is very long and very detailed.
Employment status consultation – Employment status is at the core of both employment law and the tax system, as it determines the rights that an individual gets, and the taxes that they and the business they work for must pay. But, as the review highlights, the current framework is complex and can often fail to provide the clarity and certainty that individuals and businesses need. This is increasingly the case for those who are working in new ways, including those working through digital platforms in the ‘gig economy’.
The consultation looks in detail at how the options proposed by the review would work, both in legal terms and in relation to the realities of the modern labour market, as well as seeking to understand the potential impacts and implications of those proposals.
Employment status is dependent on the interpretation and application of case law against the specific facts of each case, making it difficult for some individuals to predict their status. To address this, the consultation explores the possibility of placing the employment status tests developed by the courts into primary legislation.
This consultation also considers the rules that determine who gets which rights, and who is subject to the rules that currently apply to employees and/or workers and who is subject to the (very limited) rules that currently apply to the self-employed. Also included in this consultation is the question of what constitutes working time for the purposes of NMW (and national living wage), specifically for those working via an online platform.
Increase transparency in the UK labour market – The review highlighted areas where individuals and businesses would benefit from greater transparency around contractual arrangements between employers and workers, and made recommendations aimed at achieving this.
The government has accepted several of these recommendations in full and is now consulting on the details prior to implementing them. This includes: the proposal to extend the right to a written statement to workers as well as employees; the recommendation that the government should do more to promote awareness of holiday pay entitlements; and, in a move that will delight payroll departments throughout the nation, increase the holiday pay reference period from 12 to 52 weeks.
The consultation document focuses mostly on the recommendations which relate to transparency of information including the proposal to extend the relevant break in service for the calculation of the continuous service qualifying period, and also on proposals relating to the introduction of a right for workers to request a change in contract to improve predictability.
Agency workers – The recruitment sector has two main types of legally defined types of service: employment agencies, which introduce people to hirers to be employed by the hirer directly; and employment businesses (also known as temping agencies), which employ or engage people to work under the supervision of another person.
Current legislation covers principles such as restrictions on fees, ensuring that temporary workers are paid for the work they have done, record-keeping, advertising, and ensuring that identity and suitability checks are carried out on work seekers. The regulations provide a framework for arrangements between agencies and employment business as well as the arrangements between hiring businesses which include contracts between work seekers and agencies / employment businesses.
But there is increasing complexity in this area and it can sometimes be difficult for work seekers to understand who is ultimately responsible for paying them. The number of organisations involved in the chain can be quite lengthy, and it is not unusual for a work seeker’s money to pass through several different organisations before they receive payment. Though this is not illegal, unless deductions are being made in breach of legislation, it can be confusing.
In response the government is proposing that any contract/terms of business between a work seeker and an employment business should contain a ‘key facts’ page which should be provided to work seekers at the time they register with the relevant organisation. This page would be presented at the start of either registration or engagement with an employment business or any job offer conversationw.
This consultation also looks at the use of umbrella companies and intermediaries. Being an employee of an umbrella company can be beneficial to a work seeker as they can move between employment businesses and retain continuity of employment (and payment). However, this is dependent on those employment businesses using, or being willing to use, the same umbrella company to make payments to the relevant work seekers.
The government is suggesting a change in legislation which would require umbrella companies and intermediaries to meet a set of minimum standards in line with the minimum requirements currently in place for employment businesses. This would ensure that work seekers have sufficient information to understand who is paying them, what deductions are being made and for what reason, allowing work seekers to make a better-informed decision on whether to accept a contract.
Enforcing employment rights – Perhaps the key issue underpinning all the recommendations from the Taylor review is that for the system to work, there not only has to be clarity but justice too. Employers who break the rules must expect there to be consequences for their actions, and individuals who feel they have been wronged should feel that the system will allow their case to be heard and that a fair decision reached. And of course, the system must punish employers who are noncompliant so that compliant firms are not put at a competitive disadvantage.
In this consultation the government accepts that action is needed in this area and seeks views on how to implement the recommendations it is committed to taking forward. Those recommendations include state enforcement of the basic set of core pay rights that apply to all workers: NMW, sick pay and holiday pay for the lowest paid workers. The consultation explores how best to ensure the most vulnerable receive the level of protection they deserve, bearing in mind feasibility and cost-effectiveness for the taxpayer.
...system must punish employers who are noncompliant...
Other recommendations and actions
The government also admits, however, that there are some recommendations that will not be taken forward at this time. Perhaps that’s understandable; after all, the above four consultations cover a lot of ground.
As payroll professionals it’s important that we provide the government with as much information as we can, and the CIPP’s Policy team has published four surveys to gather members’ views, and we urge you all to take part.
But we also have a responsibility to continue to press the government to address those recommendations it has chosen not to take forward and we need to ensure that those recommendations are looked at again and not forgotten with the progression of time.