Good work? What the Taylor Review could mean for the status of your workers

Last week saw the publication of the 115-page Taylor Review of modern working practices, titled 'Good Work'. Here, Harper Macleod Partners Bruce Caldow and Lesley Murphy analyse the potential impact of the review on employment legislation and also look at what it could mean for the public sector.

Employment Law Worker Status Zero Hours Gig Economy Self Employed Scotland Lawyer Solicitor

Overview

The Review considers developments in the employment market such as the increased use of 'zero hours' contracts and the emergence of the 'gig economy'. The findings will be assessed by the Government as part of its industrial strategy and therefore could have implications for employers going forward.

The motivations behind the Review are to address the apparent unfairness that is developing in new employment practices and the difficulties faced by both individuals and businesses in determining the underlying employment status of a contractual arrangement and thereby the rights and obligations for both parties. A summary of the proposed changes can be grouped into the following three areas:

  1. Employment Status
    A proposal to amend legislation so that it is clearer to distinguish between a worker and an employee. 'Workers' should be renamed 'dependent contractors' in order to remove the requirement for personal service as being necessary for worker status. Instead there should be more weight placed on the control that an employer has in the arrangement. It is suggested that differences between the definitions of employment status in tax law and employment law should be removed so that a unified approach is adopted. Another proposal is that a claimant should initially be allowed to submit a claim to an Employment Tribunal without payment of any fees when the question of employment status is to be determined as a preliminary matter.

  2. Pay 
    It is proposed that the National Minimum Wage Regulations be amended so that 'working time' does not include instances where gig economy workers accessing assignments through a digital platform are entitled to national minimum wage. The suggestion instead is that pay be based on 'output work'. In addition, consideration should be given to an increased rate of national minimum wage for hours that are not guaranteed by an employer. There are also suggestions to extend statutory sick pay to all workers but that entitlement should accrue according to length of service. For holiday pay, it is suggested that where pay is variable the reference period should be increased from 12 weeks to 52 weeks for the calculation of holiday pay due. It is also proposed that workers be given the choice of how they receive holiday pay, including the ability to receive 'rolled up' payments.

  3. Legal Rights
    Proposals include that a written statement of terms and conditions be given to workers on the first day of employment and that this should include a description of any "day one" statutory rights. It is suggested that continuity of employment should remain in instances where there is up to a month's gap in employment, an increase from the current week's period. For agency workers and those on zero hours contracts, the proposal is for the right to request a direct contract and guaranteed hours respectively after 12 months employment. The 'Swedish derogation' should be abolished from agency worker arrangements, so that workers will be entitled to the same level of pay as equivalents within the hirer's workforce.

The Review also suggests a wider range of enforcement powers with respect to holiday pay and national minimum wage, including the ability of the Employment Tribunal to issue penalties for repeat offences by employers. The Review clearly seeks to assist employers in providing clarity in the assessment of employment status and appropriate contractual arrangements and obligations for the modern employment environment, but the proposed changes will dramatically impact upon certain sectors who rely upon short-term engagements with contractors and workers.

Are the proposals in the Taylor Review necessary?

Bruce Wide Head

Bruce Caldow, who leads the employment team at Harper Macleod and has recently helped employers with a number of disputes involving status, believes that the ideas, whilst interesting, might not all come to fruition.

He said: "On the one hand, there is certainly something for Westminster to gain by progressing legislation that increases a move away from self-employed status, as the Exchequer would enjoy increased gains on tax and national insurance returns.Simplification of regimes, such as taxation status and employment rights status, are also in keeping with government intentions to simplify and de-regulate business.

"Yet, when we read decisions such as those involving workers at Uber and Deliveroo, there really was little said to suggest anything is wrong or problematic with the current definition of worker; creating a new definition and name might bring with it significant change; across the statute book; guidance on government websites; in literature and importantly in all businesses who will need to adjust, together with, of course, further litigation about what the definition means in practice. Whether the timing of Brexit helps or hinders the proposals making it through Parliament to statute, only time will tell.

"It's very much a case of watch this space and don't suppose changes will definitely come, whilst at the same time, keeping an eye on whether your self-employed relationships can continue to be justified in law and in practice."


The Taylor Review in a Public Sector context

Lesley Wide Head

Lesley Murphy, Partner in the employment team at Harper Macleod, said: "In April this year, the public sector already saw a significant change to the tax regime affecting individuals working in the sector through their own company. The IR35 tax system has meant that public employers require to deduct at source tax and national insurance contributions where the individual works and is paid through his/her own company and would be an employee of the public sector body but for that corporate vehicle. However, as the Taylor review highlights, the question of employment or worker status is a notoriously tricky one.

"Westminster predicted that those tax reforms would affect around 26,000 individuals working in the public sector across Scotland, England and Wales. However, there were fears that the changes could drastically reduce the take-home pay of larger numbers of individuals and potentially cause a "brain drain", with talent fleeing to the private sector. Added to that, we have the predicted impact of Brexit and fears of skills gaps arising in many parts of the public sector, especially in higher education and the NHS where talent mobility is critical.

"It was reported that in response to IR35, some public sector bodies planned to ban the use of service company contractor arrangements altogether. It is possible that the Taylor proposals to extend sick pay to workers and the suggested removal of the requirement for personal service may give momentum to a the trend away from non-traditional employment arrangements as they become less and less attractive. Likewise the suggestion that workers may be free to choose how they receive holiday pay could be administratively burdensome for public employers who traditionally relied on large-scale usage of these types of contracts.

"It will be interesting to see how the public sector responds, in the event that these suggested reforms take seed. There may be an inclination to reduce what use there is of the "self-employed" or "workers'" labour, but this will no doubt need to be balanced against the risks to the sector of damaging losses of talent. The changes that Taylor envisages may well impact this sector in a completely different way than the issues that the enquiry sought to address, which are not prevalent in the public sector".

Get in touch

If you'd like to discuss how the various proposals on employee status could affect your organisation, please get in touch with a member of our team.