Labour to run employment status consultation ‘before 2026’

Contractors will get to read Labour’s employment status proposals, potentially affecting IR35 and limited company workers, before 2026.

According to a now fully transcribed Lords debate, a government minister said the employment status consultation would be published “by the end of this year.”

On behalf of the government, Baroness Jones also said “pressing issues within the current framework, such as…[sham] substitution clauses” would be part of the consultation.

‘Employment protection’

An ex-trade union official, Baroness Jones said she worries that today’s status rules “can enable exploitation at work and leave vulnerable people without core employment protection.”

Labour first committed to an employment status consultation in May 2024.

The commitment was absent from the party’s June 2024 election manifesto, so the updated timeline from Baroness Jones offers reassurance that it is still going ahead.

‘Strengthen protections for the self-employed’

But the Future Digital Economy minister’s words about the employment status consultation have the potential to unsettle entrepreneurial contractors.

Baroness Jones said at the Lords debate on July 23rd 2025: “We will seek views on proposals to…protect some of the most vulnerable workers.

“[And] we are committed…to additional measures to strengthen protections for the self-employed.”

‘More autonomy in the workplace’

Labour used less potentially disconcerting language about reviewing employment status in its 2024 election manifesto.

On June 13th 2024 in “Change”, it spoke of fixing “outdated employment laws” as part of providing “more autonomy in the workplace”.

By that time, Labour had already vowed to carry out a “full and detailed consultation on…plans to move towards a single status of worker.”

‘In the dark over major reforms to employment status’

Lord Hunt of the Conservatives, in last month’s Lords debate, reminded:

“In their Make Work Pay document…[Labour] committed to consulting on a simpler employment framework -- one that distinguishes clearly between workers and the genuinely self-employed.

“However, the reality is that platform workers and the innovative businesses that rely on them remain in the dark.

“There is no detail, no timeline and no clarity as to when or indeed whether these major reforms to employment status will materialise. In the meantime, uncertainty reigns, and that uncertainty is not without cost.”

‘Single Worker Status by Labour seems to have been dropped’

A status expert says that, reading between the lines of comments at the debate by Baroness Jones and Lord Katz (also of Labour), single worker status might now be dead in the water.

“So the government seems to have dropped Single Worker Status in favour of looking at the employment status framework,” the expert, Rebecca Seeley Harris, told ContractorUK.

“It looks like it’s going to be a more flexible consultation on employment status, as it will consider the possibility of ‘dependent contractor’ or a third way.”

Neither Jones nor Katz spoke in the Lords' debate about ‘dependent contractor’ status but there was a show of support for it from other peers.

‘Satisfactory form of dependent contractor status’

Lord Clement-Jones of the Lib-Dems (which backed ‘dependent contractor’ in 2019) said:

“I have had some useful conversations with Evri, which engaged in a legal case when it was under the name Hermes.

“As a result of its engagement with the GMB [union], it has come forward with what I think is an extremely interesting and satisfactory form of dependent contractor status that grants certain rights as if they were employees, and that is precisely what I hope this consultation will come up with”.

‘Labour’s employment status consultation will probe personal service’

Seeley Harris says the current signs are that the consultation will assess how the UK’s three-tiered employment rights system runs and where it causes uncertainty.

The three tiers -- or three statuses -- are employee, limb (b) worker, and self-employed.

Boss of Re Legal Consulting which specialises in IR35 and off-payroll working rules advice, Seeley Harris says:

“[Other] subjects the consultation will cover….[include] tackling the use of contractual substitution provisions that do not operate in practice.

“This will likely be looked at in Labour’s employment status consultation as part of the inevitable examination of personal service and classification.”

‘Not right to pre-empt the employment status consultation’

The government will produce impact assessments for any new legislation following the publication of the employment status consultation, said Lord Katz.

One aspect of that assessment -- complexity -- which is why IPSE has previously objected to ‘dependent contractor’ -- is already on the mind of Baroness Jones.

“It would not be right to pre-empt the employment status consultation by making changes for one particular industry of freelancers.

“Nor would it be right to introduce additional legal definitions at this stage. To do so risks making the system more complex for relevant individuals and organisations to understand,” said the minister.

‘Lip-service consultations’

The emphasis on avoiding extra complexity while achieving something tangible is a welcome first step, according to Qdos.

The IR35 contract review firm’s Nicole Slowey says: “There have been countless ‘lip service’ consultations over the years, which is why this one is so important.

“It’s time for change. By this, I mean simplifying employment status once and for all; giving self-employed workers and businesses clarity and confidence, which is vital in helping ensure compliance.”

‘Weed out employment in disguise’

A freelance systems engineer -- the very type of worker who stands to be affected by Labour’s employment status plans, has a “once and for all” of his own.

“So-called ‘self-employed’ [individuals] running a small limited [company] business running its own payroll do not ‘want’ to work for themselves, they just ‘do’ work for themselves,” began the engineer, Iain Clement.

“[So policymakers,] please set the rules by which you take your cut, once and for all. Then leave [it to] the rest to us…[and] above all, get out of the way, forever.”

Taking to LinkedIn, Clement made clear that “it is in everyone's interest to weed out employment in disguise.”

‘Defining freelancer as a person who provides services on a project or contract basis’

One “helpful approach” would be for the government to adopt a “three-tier taxonomy,” according to Lord Freyberg.

The crossbench peer said: “[Firstly that means] defining ‘freelancer’ as a person who provides services on a project or contract basis, often to multiple clients, without being an employee.

“[Secondly, define] a self-employed person….[as] someone who runs their own business and is responsible for its success or failure, typically registering with HMRC for tax purposes.

“[And third, define] a sole trader [as] a specific legal and tax classification in which an individual runs a business in their own name without forming a limited company.”

‘Biggest shake-up in employment status in decades’

Despite his recommendation, Seeley Harris clarified yesterday (Monday August 25th) that no government decision has yet been taken as part of the updated employment status consultation timeline to change the number of employment status categories.

“[Nonetheless,] this could be the biggest shake-up in employment status in decades,” she says.

“The Conservative government consulted on employment status in 2018 but decided to take no further action.

“This [employment status consultation by Labour] will come alongside the planned consultation on umbrella regulations, which will be another change in the labour supply chain, along with the change in joint and several liability effective from April 2026.”

‘Employment Status consultation won’t necessarily be at Autumn Budget 2025’

Asked by ContractorUK if Baroness Jones’s “by the end of the year” pledge was code for Autumn Budget 2025 (which is yet to be diarised by HM Treasury), the status expert implied the government was probably keeping its options open to avoid a mess.

Seeley Harris said: “This employment status consultation is currently under DBT [the Department for Business and Trade]. So it will be interesting to see whether it ends up being a joint consultation with HMRC.

“But in terms of a precise launch date, at present, there are several consultations affecting the contractor industry that may conflict, such as the umbrella regulations consultation. So, no, it won’t necessarily be in the autumn.”

‘Important issue’

In the Lords debate, Baroness Jones claimed that the government had, until now, declined to diarise the employment status consultation “because we know that the issue is important and complex, and we are keen to allow enough time to shape it in the right way.”

Labour’s Lord Katz said: “The government are committed to consulting on employment status and are doing so with the care, focus and full engagement that this important issue requires.”