Do you want to find your business on the wrong side of a judgment which indicates that your workforce has greater employment rights than you thought? Or a different tax status? If not, you need to know about the gig economy and how it might affect you.
The gig economy is a workforce where more and more businesses, like Uber, Deliveroo and Pimlico Plumbers, utilise innovative contractual arrangements, including ‘self-employed contractors’ and ‘zero hours contracts’, to maintain their workforce on a flexible, ad hoc basis. These developments have brought the question of employment status into stark focus. They will make it increasingly difficult for businesses to understand the legal obligations owed to its workforce going forward.
The law, as it currently stands, provides for three categories of employment status:
- employees – those who work under employment contracts and are subject to a substantial degree of control by the employer;
- self-employed – those who are in business on their own account and take responsibility for the success of the business; and
- workers – those who fail to reach the high pass mark necessary to qualify as employees but cannot be said to be genuinely self-employed either.
Determining which category a particular individual falls within is often difficult. It has only been made more so by the fact that the legal and practical considerations for determining employees and workers are now extremely similar. This difficulty has been compounded by the differing tax treatment of individuals by HMRC.
The distinction, however, is an important one as certain core legal rights, such as statutory protection against unfair dismissal and entitlement to redundancy pay, only apply to employees. Increasingly, statutory rights are also being granted to workers, which include entitlements to the national minimum wage and holiday pay. The self-employed, on the other hand, do not benefit from these protections. These categories determine individual tax and National Insurance liabilities.
The question raised by these developments is not new. Employers have long since grappled with it. What is new is the scale of the changes in the workforce. Approximately five million people in the UK are now self-employed, up 45 per cent since 2008. Such changes, within a relatively short timeframe, have had a significant impact on the structure of the workforce and public finances.
The courts are willing to look behind the terms of written contracts to ascertain what is really going on and HMRC has increased its’ scrutiny of businesses who utilise a ‘flexible workforce’ so as to obtain increased tax and National Insurance contributions.
Actions you can take to protect your business:
- review the contracts you have with your workforce and ensure that ‘employment status’ is made clear;
- examine the reality of your working relationships to ensure your contracts reflect this;
- regularly monitor your working practices to ensure your working relationships have not evolved into something different or more; and
- ensure that all such contracts are reviewed at least every two years, and updated as necessary.
This will help to ensure that there are no surprises or unanticipated tax bills now or in the future.