Government reforms (1): Employment status – Taylor Review

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What do we already know?

We updated you in our February 2017 Newsletter Government reforms (3): Employment status – reviews on the Taylor Review (launched in November 2016) which has been set up to work towards resolving the complexity of employment status.

What’s new?

The Taylor Review of Modern Working Practices (the Review) was published earlier this month and considers how technology platforms have impacted working practices.  It focuses on the importance of quality work: “fair and decent work with realistic scope for development and fulfilment” and makes detailed recommendations for reform of UK employment law in respect of those who are not engaged as traditional employees, both in the “gig economy” and elsewhere.

The report sets out the following key policy approaches:

  • The goal of the national strategy for work (which is described in the report as the “British way”) should be “good work” for all. The UK should not only focus on how many people are in work, but on the quality of work. Contrary to some media reports, the Taylor Review report concludes that there is no need to overhaul the whole system;
  • Platform based working, as in the ‘gig economy’ where workers provide their services through apps and other digital systems, has a role in modern society so should be protected but not at the expense of those who work in them. Worker status should be retained but renamed as “dependent contractor” status, and the distinction between “dependent contractors” and the self-employed should be clearer;
  • “Dependent contractors” should be entitled to additional protections and there should be stronger incentives for companies to treat them more fairly;
  • Businesses should take “good work” seriously and be open about their practices. The report does not advocate more employment regulation, but businesses must have good corporate governance and management, and strong employment law relations;
  • There need to be new ways for people to strengthen their future work prospects and enhance their skills;
  • Businesses must take a more proactive approach to workplace health, given the correlation between the “shape and content” of work, on the one hand, and individual health and well-being, on the other; and
  • The Government needs to promote sectoral strategies engaging employers, employees and stakeholders to ensure that people are not permanently stuck on the National Minimum Wage (NMW).

Practical recommendations of particular interest include:

Zero Hours Contracts

The Review does not suggest the banning of zero hours contracts. It recognises that some workers may want to work in this way. However, the Review concluded that too many employers are still relying on zero hours contracts, short-hours or agency contracts.

The Review made recommendations in relation to zero hours contracts:

  • A higher rate of the NMW for hours not guaranteed by the individual’s contract should be considered. The higher rate should be set at a level which incentivises employers to schedule guaranteed hours as far as reasonable within their business. For example, if someone has six hours’ work a week guaranteed, but actually works more than this, the six hours would be paid at NMW rate and the rest at new premium rate. Following the current regime for calculating the NMW, an employer could average hours and pay out over a pay reference period;
  • Individuals working under zero hours contracts who have been in post for 12 months should have the right to request a contract that guarantees hours which better reflect the hours worked;
  • Companies beyond a certain size should be required to report on how many requests they have received (and number agreed to) from zero hours workers for fixed hours;
  • For any casual work contract, the current rule providing that continuity is preserved if there is less than a week’s gap should be increased to one month. The Government should also clarify the situations where cessations of work for the same employer can be justified; and
  • The Review considered that there is no need to create a separate “intern” status but the law should be clarified so that it is easy to determine whether an intern falls under the definition of worker (or “dependent contractor” if worker status is renamed).

Dependent Contractors (new name for those with ‘worker’ status)

A requirement to perform work personally would no longer be crucial to being a “worker” – the focus would be on how much control an organisation has over that individual. The rationale for this is that it is unfair that individuals who, in theory at least, have the right to provide a substitute should not be able to gain “worker” (or “dependent contractor”) status.

Organisations that have a “controlling and supervisory” relationship with individuals, who they may be classifying as self-employed, would have to pay a range of benefits. This would include holiday and sick pay, for example. As a result, the report recommends changing the current pay reference period from 12 weeks to 52 weeks to help seasonal workers and others. The Review recommends that “rolled up” holiday pay should also be available, meaning that “dependent contractors” would be able to choose between taking paid time off and receiving a premium on their pay instead.

Other Recommendations

The Review makes a number of other recommendations which include:

  • Proposed legislative changes (e.g. adapting the definition of “output work” under the NMW Regulations to capture services provided through Apps and enshrining the criteria for having “employee” and “worker” status in primary legislation);
  • Individuals who are employed for tax purposes having “employee” or “dependent contractor” status. Currently, different tests apply in the employment law and taxation spheres;
  • Agency workers being given the right to request a direct employment contract with their hirer after 12 months’ service. A hirer would be obliged to consider such a request reasonably;
  • Giving individuals a right to return to work following long-term sickness absence;
  • Extending the right to a written statement of terms to workers as well as employees, to include a description of statutory rights and with a stand alone right to compensation if a statement is not provided;
  • Requiring written statements to be given on day one of employment;
  • No hearing fee for preliminary hearings on employment status and that such hearings should be expedited;
  • HMRC should be given responsibility, rather than the Tribunals, for enforcing the basic set of core pay rights, such as the NMW, sick pay and holiday pay and possibly even unlawful deductions from pay, on behalf of the lowest paid workers;
  • The Government should make available a new free online tool for determining employment status, similar to HMRC’s Employment status indicator. This tool could also provide advice and information on entitlement to rights, how to qualify for them, and signpost other relevant information;
  • Statutory Sick Pay (SSP) should be reformed so that it is available to all workers in the same way as the NMW or holiday rights. In the panel’s view, it is “perverse” that an employer should be liable for up to six months’ SSP for an individual who has only worked for them for a very short period of time. It has therefore recommended that SSP should accrue with length of service, in the same way as holiday entitlement; and
  • The way in which employers handle returns to work after periods of sickness should be improved, and that they should do more to support those employees over and above making reasonable adjustments.

Comment:

Although potentially far-reaching, it is important to note that the Review only constitutes a set of recommendations for the Government to consider. It is unclear whether or when any of the Review’s recommendations will be introduced in practice, particularly given the Government’s lack of a parliamentary majority. Also, given the very large number of jobs that have been created in the gig economy sector in recent years, and its benefits to consumers and the economy as a whole, this is a matter about which the Government will need to be very cautious to ensure that it does not inadvertently and irreparably “break” the model.