Ministers agree to make vast changes to contract work

Advisers to contractors are warning that they -- and presumably their clients too -- are going to be kept “very busy,” because the government has not just merely responded to the Taylor Review.

It has also unveiled four big consultations for the self-employed and their advisers to contribute to, aimed at exploring the main areas where it wants rules around freelance, contract work to change.

Borne out of Taylor’s recommendations (he made 53, and all but one will be fully or partially adopted), the four are:

- Employment Status

- Increasing Transparency

- Agency Work and;

- Rights Enforcement

Before an outline (below) on those four with reactions from advisers, the main take-away for people who work independently is that the chancellor's bodged NICs hike is not going to be revisited.

This is the one recommendation of Matthew Taylor who said the principles behind Philip Hammond's move to raise Class 4 NICs were “correct”, that the government has explicitly rejected.

This alone will be regarded by some self-employed people as evidence that the government is on their side.

The second biggest development, based on the review’s recommendation, is that all ‘workers’ – including ‘gig economy’ workers – will receive sick pay from day one of their engagement.

Freelancers have said that out of every statutory benefit that employees receive, sick pay is the one they’d like the most. So some freelance workers will likely see this is as another win.

Employment Status

  • The consultation seeks views on how to make the employment status rules for both employment rights and tax clearer for individuals and businesses.
  • It poses 64 questions
  • It’s open until June 1st

The mere fact that the business department has now found the time amid Brexit negotiations to study the details around employment status makes one adviser who spoke to ContractorUK on condition of anonymity believe that the promised IR35 reform consultation is probably ‘ready to go’ too.

As to what the 55-page consultation actually says, it proposes developing a new test for tax purposes which is not based on employment status.

But the newly floated ‘dependent contractor’ status, framed by Taylor as ideal for people who are eligible for worker rights but aren’t employees, is not given a full green-light.

The government’s mixed wording in responding to his three recommendations concerning dependent contractor status has left one solicitor who specialised in tax confused.

“Will Matthew Taylor’s suggestion of a new ‘dependent contractor’ category to replace the current ‘worker’ status be taken forward?” asks Shaun Critchley, now boss of tax firm ADVANCE.

He added: “The area of employment status is notoriously complex, so the government will really need to get the detail right if and when it comes to legislate on this.”

Contractors’ body IPSE is pleased at the government’s hesitation. “[It’s] positive….that the government has not fully accepted Taylor’s proposal to change ‘worker’ status into a new and reformed ‘dependent contractor’ status.

“[We were] concerned this would only add to the confusion in the sector and that the new status could even be too reductive.”

The trade body also said: “It is certainly positive that instead of adopting the new status, the government has committed to consulting on changing the tests for worker status.”

The next challenge is to change those tests with tact so as not to hurt genuinely self-employed people, the Freelancer and Contractor Services Association (FCSA) warns.

Chief executive Julia Kermode reflected: “We very much welcome the proposed consultation on employment status, and we hope it will bring much-needed clarity to the different statuses in which people are engaged. Care needs to be taken not to disrupt those making an informed choice to be self-employed”.

Meanwhile, given that the consultation is “extremely broad, complex and ambitious” according to staffing body APSCo, there is applause for the government from many for letting it run for a full four months.

Increasing Transparency

  • The consultation seeks views on how to increase transparency around contractual arrangements between employers and individuals
  • It poses 48 questions (not all applicable to freelancers/contractors)
  • It’s open until May 23rd

Some of the shortest and potentially 'sweetest' proposals from the government relate to increasing transparency. Among advisers, the proposals appear to have no critics at all.

They include:

  1. Giving all 'workers' the right to payslips and improving the quality of detail on those payslips
  2. Giving workers the employee-style right to a principal written statement (subject to consultation)
  3. Promoting awareness of holiday pay entitlements, and boosting the holiday pay reference period from 12 to 52 weeks (subject to consultation).
  4. Extending the relevant break in service for the calculation of the continuous service qualifying period
  5. Introducing a right for workers to request a change in contract to boost predictability.

When combined with the plan to extend the type of workers eligible for sick pay, Mr Critchley says the transparency proposals add up to an indirect support of umbrella company working.

“As for the proposals regarding greater transparency on pay and rights, I’d argue that they amount to a tacit endorsement of the umbrella employment model,” he said.

“Contractors employed by ethical, compliant umbrella providers like ourselves already benefit from holiday pay and sick pay, along with detailed and transparent pay breakdowns.”

The FCSA agrees that the best-practice parts in and around the umbrella sector might have indeed inspired the government's immediate and ‘to be consulted on’ policy decisions.

“[Providing] workers with a clear breakdown of who pays them and any costs or charges deducted from their wages [is welcome],” the association said.

“It is wholly wrong for workers to be told they will receive a particular rate and subsequently find that they are paid something different. We have consistently encouraged agencies and umbrella firms to work closely to ensure that the correct rate is agreed for assignments and that umbrella employees understand how their pay is calculated.”

Reflecting on the four consultations as a whole, but specifically the transparency proposals, the association’s Ms Kermode pointed out: “The focus seems to be clarity of differences between ‘workers’ and self-employment. Hopefully any resulting changes will not unfairly penalise those who make an informed choice to work for themselves.”

Agency Work

  • The consultation seeks views on how to increase transparency of contractual arrangements for agency workers, and explores if umbrellas/intermediaries should be within the EAS’s scope
  • It poses 12 questions (multiple parts)
  • It’s open until May 9th

Temporary staffing agency workers should directly benefit from the new payslip proposal (outlined above), which should bring them more clarity under the prevailing ‘tripartite’ arrangement.

Extending clarity not just to who pays them but what the worker takes home as well, the payslip proposal will also address uncertainty about costs or charges deducted from agency staff’s wages.

Further affecting such temporary workers is a potential plan to repeal laws that allow agencies to employ workers on cheaper rates using the so-called Swedish Derogation model (currently permitted under the AWR).

But staffing watchdog the Recruitment & Employment Confederation says it wants the entire Agency Workers Regulations (AWR) reviewed.

Although the REC welcomes the government’s overall response to the Taylor Review, it branded it “disappointing” that there will be no tweaks to the Apprenticeship Levy – which is behind a new deduction many agency workers have had to absorb since April 2017.

Rights Enforcement

  • The consultation seeks evidence on the problems the low-paid face in accessing sick and holiday pay, as the government plan is to grant all workers, notably the vulnerable, such basic employment rights.
  • It poses 22 questions (with allocated space for answers, or boxes to tick)
  • It's open until May 16th

The showpiece of the government’s response to the Taylor Review is to agree with the recommendations that a “basic set of core” rights should apply to all, including the provision of sick pay and holiday pay.

Tabled to protect the lowest-paid workers, including those in the ‘gig economy’ the policy is yet to be finalised, as the government says “the exact means” of granting all such rights requires “further work.”

Already though, most advisers seem impressed. “I particularly welcome the government’s plans [around]…enforcing sick pay entitlements for the self-employed,” says Ed Molyneux, boss of a cloud accountancy firm for independent workers, FreeAgent.

“The reason is obvious… when you’re self-employed, if you’re too sick to work, you won’t make any money.”

The REC agrees. “We are very pleased to see that the government is working towards more consistency and transparency around the rights and status of people working in the gig economy.

It added: “This is something that is much needed to level the playing field so gig workers get the same rights as agency workers receive, such as holiday and sick pay.”

Qdos, an IR35 advisory, is supportive of the move too – although not unconditionally.

“We welcome any move to protect gig economy workers, who in many cases need such rights,” said the advisory’s CEO Seb Maley, a former tax official.

“But it's important not to confuse these workers with independent contractors who in the past believe they would benefit from a tax rethink instead.”

Another ex-Revenue inspector, Carolyn Walsh, says that looking at the overall Taylor Review response, it's clear that contract workers will eventually face numerous differences to how they can operate.

“This [large response to the Taylor Review from the government] will result in new legislation which will see many changes. But don't worry or jump to the conclusion that this will be bad news for freelance workers,” she said.

“The Taylor Review came from the point of view of the worker, as much as understanding the need for flexibility in the UK labour market.”

Underlining the sheer scale of the different changes to independent work, some now and some longer-term, Ms Kermode posted on LinkedIn: “Here is the government's press release outlining their response to Matthew Taylor's review of modern working practices.

"Proposals include clarity over [new] rights from day one, consultation on employment status, transparency of pay and potentially repealing [the] Swedish derogation [model]. Plenty to keep us busy."

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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