Back in February 2018, the Government published a consultation looking at employment status for tax and employment law purposes.  Over four years later we finally have the Government’s response to that consultation, though a lack of consensus amongst those who replied, and the intervening pandemic, appear to have reduced the Government’s appetite for reform.

What is the issue with employment status?

Employment status is a key issue for both employment and tax law.  It dictates how an individual is taxed, as well as what rights they are entitled to (e.g. national minimum wage, holiday and sick pay etc.).

For tax purposes there are two status categories – employee and self-employed.  However, employment law also has an intermediate category of ‘workers’, who are entitled to some, but not all, employment rights.

Despite the importance of employment status, there is no legislative test to determine which category an individual falls into for either tax or employment law purposes. Instead, various tests have been developed by the courts over time.

What did the consultation cover?

The consultation looked at the following broad areas:

• Issues with the current employment status regime - the vast majority of those responding agreed there were issues, including the current regime being outdated, complex and open to interpretation.
• Whether an employment status test should be legislated for and, if so, how?  The majority of respondents didn’t support legislating the current tests, but there was no real consensus on what any alternative should look like.
• Whether the employment rights status of ‘worker’ is still relevant?  The majority agreed this was helpful and should be retained as it allows for flexibility for businesses and individuals.
• How ‘working time’ should be defined for National Minimum Wage / National Living Wage (NMW/NLW) purposes, in particular in the context of app-based work?  Many respondents indicated that expanding NMW/NLW to cover time ‘logged in’ to apps would cause platforms to restrict access, reducing flexibility.
• Whether or not ‘self-employment’ should be defined in legislation? The majority agreed that this was not necessary.
• Whether there should be greater alignment between the employment status rules for tax and employment law?  Although many respondents favoured greater alignment, there were different views on how this should be achieved.

What is the Government’s response?

As can be seen from the above, although many people responding to the consultation favoured some kind of reform, there was no overall consensus as to what this might look like.  Rather unsurprisingly, the Government have therefore decided not to proceed with any large scale changes to the employment status rules as at this time.

In their response, the Government reiterate their belief that the current three-tier framework of employee, worker and self-employed is a strength of the UK system, allowing flexibility for both employers and individuals. They also point out that, since the original consultation was published in 2018, the UK labour market has changed due to the pandemic and wider global economic upheavals.  As a result, they believe that the benefits of creating a brand new framework for employment status are currently outweighed by the associated risks.

The Government are however taking some steps towards increasing transparency for individuals on employment status. This includes publishing or updating Employment status for employment rights purposes: guidance for HR professionals, etc, Employment status and rights: support for individuals and Employment status and rights: checklist for employers and other engagers (which includes updated guidance on the NMW/NLW for platform workers).

Finally, on tax status, the Government acknowledges that there could be benefits to greater alignment with employment law.  However, given the lack of consensus amongst respondents and ongoing economic context they consider that this is not the time to proceed with any changes.  Instead, they will work closely with stakeholders to explore longer-term improvements.