'Dependent contractor' status: quick summary
A new employment status category of ‘dependent contractor’ is the showpiece of the Taylor Review, a nine-month probe into modern working practices published yesterday.
The following overview outlines what this newly recommended category is; why the review believes it necessary and how it could operate. Reactions from IPSE, the CIOT, APSCo and the FCSA follow the overview.
- ‘Dependent contractor’ -- as a new status category -- is the Taylor Review’s suggested term to reflect the increasing casualisation of the labour market, the ‘gig economy.’
- Serving as an intermediary status between employee and worker, the category would cover casual, independent relationships, with a more limited set of key employment rights applying, including holiday pay (which should also be on offer on a ‘rolled-up’ basis).
- So ‘dependent contractors’ will be eligible for some worker rights, such as sick pay, but they would not be employees, nor would they be genuinely self-employed.
- The status of ‘dependent contractor’ should have a clearer definition than that of ‘worker,’ but the government will need to consider what constitutes ‘worker’ before framing a definition.
- The Taylor Review believes that the absence of requirement to perform work personally (‘Personal Service’ in IR35 parlance) should no longer be an automatic barrier to accessing basic employment rights.
- The review also believes the principle of ‘Control’ should be of greater importance when setting the test for -- and determining -- ‘dependent contractor’ status.
- Giving ‘Control’ more clout, in terms of its determination weight, should not disturb the courts too much, but less emphasis on Personal Service should help protect more people from exploitation.
- Prioritising ‘Control’ at the expense of Personal Service is envisaged by the review to “make it harder for some employers to hide behind substitution clauses”.
- When coming up with the ‘dependent contractor’ status test, the trick is to ensure that any redefining of ‘worker’ does not impact on those individuals who the existing categories serve well.
- When developing the test, a “renewed effort” should be made to align the UK’s employment status framework with its tax status framework to reduce differences between the two.
Industry Responses to the Taylor Review’s ‘Dependent Contractor’ Status Proposal
Andy Vessey, head of tax at Qdos Contractor, suggests further detail to allow a proper assessment of the proposal is missing from the Taylor Review. But he sees some synergy with the government’s latest positioning on IR35.
He said: “While the review touches on the need to differentiate between dependent contractors and genuinely self-employed workers, it could perhaps elaborate.
“A fundamental difference exists between workers such as Uber drivers and Deliveroo riders -- who might well need protection -- compared to the vast majority of the UK’s professional freelancer and contractor workforce.
“Professional freelancers and contractors typically command higher rates of pay, enjoy more control in the way they work and in the vast majority of cases, are genuinely self-employed.
“Interestingly, the review suggests a move away from personal service and towards control for determining what constitutes a 'dependent contractor'. This is a move alluded to in much of the IR35 consultation over the past couple of years.”
Julia Kermode, chief executive of the Freelancer & Contractor Services Association, is sympathetic to the proposal. She sounded relieved that it does not talk of ‘SDC.’
“[The] ‘dependent contractors’ [proposal] makes sense in theory because current legislation is complex.
Taylor’s review recommends that control should play a greater role in determining status and we are pleased to hear that HMRC’s frequently used mantra of ‘Supervision, Direction or Control’ is not going to be used as a measure to determine status.
“Any such new legislation should be subject to public consultation, and care will need to be taken to ensure that it truly does deliver simplification without unintended consequences.”
Samantha Hurley, a director at The Association of Professional Staffing Companies, believes that ‘dependent contractors’ will be categorised as to whether they are under the ‘SDC’ of the outfits they are working for, although an explicit mention in the review of ‘SDC’ is absent.
She added: “APSCo broadly supports the proposal to classify workers as ‘dependent contractors’, who are not employees, but are eligible for workers’ rights such as sick pay, holiday pay, minimum wage, and a new right to request fixed hours, with a free pre-employment tribunal process. In terms of protecting vulnerable workers, this is a sensible suggestion.
“We further welcome the fact that this report offers a clear differentiation between this group of workers and independent contractors who willingly choose to exchange traditional job security for flexibility and control.”
Chris Bryce, chief executive of The Association of Independent Professionals and the Self-Employed, believes the term ‘dependent contractor’ could offer some advantages. But he hinted that it oversimplifies a complex area and so may prove inadequate.
He said: “Renaming workers ‘dependent contractors’ might bring some benefits, but government will have to be absolutely clear who falls into this group. It will still be up to the courts to rule on employment status. We also have a serious concern that it is far too reductive to only look at direction and control as indicators of worker – or ‘dependent contractor’ – status.
“In reality, things are a lot more complicated than that. You should still also consider the ability to choose when and where you work, whether the role is project-based and whether you have the right to send a substitute.”
The Chartered Institute of Taxation is not unsupportive of the new term, but it implied that it only scratches the surface. In a statement, it said:
“The suggestion in the Taylor Review to keep the three categories of workers under employment law -- renaming one ’dependent contractor’ from ‘workers’ -- means further work will still be needed to ensure fairness and simplicity in tax outcomes.”
Unimpressed and with some concerns is the CIOT’s Colin Ben Nathan. He said: “Unless the tax status of ‘dependent contractors’ is addressed at the same time as their employment and other rights are established, the tax system will remain complex and distorted.
“Maintaining three different categories of workers (employed, ‘dependent contractor’ and self-employed) for employment law but just two for tax (employed and self-employed) is a mismatch which means confusion and inconsistency among taxpayers and their employers will continue. It is crucial that individual taxpayers and employers know what their responsibilities are to HMRC before any such detailed change to the three employment categories goes ahead.”