Government decides not to act on employment status

The Government has decided that creating a new framework to clarify employment status would be too disruptive and difficult, following a consultation process.

There has been much discussion about the need for greater clarification about the blurred areas of employment status, for instance, who is a worker or employee and who is self employed. Status is crucial when it comes to employment rights and tax status.

The Taylor Review of 2017 called for greater clarity over employment status to distinguish those who are genuinely self employed from those whose employers are using self employment to avoid employment rights. The review also called for basic employment rights to be extended to all workers, including the self employed, and for a consistent taxation policy across employment forms. And it said those on zero hours contracts for 12 months should have the right to request fixed hours as well as proposing a new employment status of dependent contractor to be developed so that those in the gig economy have basic employment rights, which might include sick pay and holiday.

The Government says it recognises that boundaries between the different statuses can be unclear for some individuals and employers. However, it states: “The benefits of creating a new framework for employment status are currently outweighed by the potential disruption associated with legislative reform. Although such reform could help bring clarity in the long term, it might create cost and uncertainty for businesses in the short term, at a time where they are focusing on recovering from the pandemic.”

It received 162 responses to its consultation, mainly from businesses, trade bodies and trade unions and says “a large number of respondents were supportive of employment status reform”. However, it said there was no overall consensus on what action should be taken and many agreed that there was no easy solution.

It said the majority of respondents also felt that the worker category was helpful and should be retained. Many also wanted to see improved guidance on the employment status boundaries and examples on how to apply the rules to different scenarios.

Disappointment

Dave Chaplin, CEO of tax compliance firm IR35 Shield, said: “Today’s report makes for very disappointing reading. After spending over four years since the consultation closed on 1st June 2018, the Government has carefully considered all 162 responses and published a 32-page document which effectively says ‘We have decided to do nothing’.

“Curiously, against the backdrop of introducing the Off-payroll reforms, which, in April 2021, forced 60,000 businesses to assess the status of some half a million freelancers, the Government is now stating: “..the benefits of creating a new framework for employment status are currently outweighed by the potential disruption associated with legislative reform. Although such reform could help bring clarity in the long term, it might create cost and uncertainty for businesses in the short term, at a time where they are focusing on recovering from the pandemic.”

“It appears to me that the Government has inadvertently admitted that it perhaps should have agreed to the proposed further two-year delay before rolling out the Off-payroll reforms into the private sector, at the time when the country was mid-pandemic and is still recovering. In addition, the country is still reeling from the impact of Brexit. Off-payroll, Covid and Brexit have been punishing for the UK economy, and it seems the Government is only just waking up to that fact.

“On the final page, the report states “Now is not the right time to overhaul the employment status frameworks for rights and for tax”.

“Employment status is complex, and as previous Governments have done, this topic is being filed into the “too difficult to deal with” drawer.”

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