"Established definitions of employment and self-employment are straining at the leash."
So says the Work and Pensions Committee in their May 2017 report on self-employment and the gig economy.
In seeking a solution,the Committee is travelling in the same direction as the recent bike courier and Uber taxi driver decisions.
What appears increasingly likely is that:
- Some individuals who could perhaps have been called 'self-employed' in the past may need to be treated as 'workers' (and afforded the rights, such as national minimum wage and paid holiday that flow from that); and
- National insurance contributions for employees / self-employed will be equalised.
Here's what the Committee had to say on some key topics:
Flexibility
Companies relying on self-employed workforces frequently promote the idea that flexible employment is contingent on self-employed status. But this is a fiction...people on employment contracts can and do work flexibly.
Profit, not flexibility is the motive for using self-employed labour in these cases. It is incumbent on government to close loopholes that incentivise exploitative behaviour by a minority of companies.
Exploitation
Some companies are using self-employed workforces as cheap labour, excusing themselves from both responsibilities towards their workers and from substantial National Insurance liabilities, pension auto-enrolment responsibilities and the Apprenticeship Levy.
The ease with which companies are able to classify their workforces as self-employed both fails to protect workers from exploitation, and potentially increases strain on the welfare state.
Default 'worker' status
An assumption of the employment status of 'worker' by default, rather than 'self-employed' would protect both workers and the public purse. Companies wishing to deviate from this would need to present the case for doing so.
As there is no 'worker' status in tax law, tax status would be unchanged. In effect, this would place the burden of proof of employment status on the company, rather than the worker.
Parental benefits
Self-employed people cannot claim parental benefits. The government has stated that it is seeking to address this.
Equalising NICs for employees / self-employed
Historically, self-employed people received much less support than employees. Now, following the introduction of the New State Pension, entitlement to all of the services funded by National Insurance is almost equalised. Yet self-employed workers contribute far less.
The incoming government must set out a roadmap for equalising self-employed and employee NICs.
Pensions and the self-employed
Low levels of retirement saving amongst the self-employed risk storing up grave problems of potential hardship and reliance on the welfare state in later life. Current auto-enrolment structures are not encouraging sufficient pension saving by the self-employed.
The idea of using an opt-out system on tax returns to encourage greater contribution to pensions is an interesting one that merits further consideration.
Where to now?
The Taylor review into Employment Practices in the Modern Economy is due to report back in the summer. That report,and the positions adopted by politicians in the run-up to the general election, may indicate the likely road ahead. But there can be little doubt now that change, at least in some form,is coming.
Contributor
Practice Development Lawyer
