Government responds to Taylor Review and the changing world of work | What the proposals mean for suppliers and users of contingent workers

Written on 7 Feb 2018

The government has announced that it is “taking forward” (and in some cases completely accepting) all but one of the recommendations made in the Taylor Review, an independent report published last year which investigated the impact modern working practices are having on the world of work.  It also picks up recommendations set out in the joint report of the  Work and Pensions and Business, Energy and Industrial Strategy Select Committees.   The government plans to ‘go further’ than the review’s proposals in a number of respects, including a right for all workers to be given a list of day-one rights, including holiday and sick pay entitlements and the right to a payslip; and a right for all workers to request more stable employment contracts.

Matthew Taylor, author of the original review, has called the government’s response ‘substantive and comprehensive’.

A clearer focus on the quality of work

Recognising the need for a clearer focus on the quality of work, as called for by Matthew Taylor, the government’s press release confirms that it will become ‘accountable for good quality work’ as well as quantity of jobs; a key ambition of the UK’s Industrial Strategy.  The government is adopting a three pronged attack: ensuring workers know their rights; they receive the benefits and protections they are entitled to; and action is taken against employers who breach workers’ rights.

Measures the government has highlighted in its announcement, reinforcing and building on the recommendations in the Taylor Review and the joint report of the Work and Pensions and Business, Energy and Industrial Strategy Select Committees, include:

  • a list of day-one rights, including holiday and sick pay entitlements and a new right to a payslip for all workers, including casual and zero-hour workers. Agency workers will also be provided with a clear breakdown of who pays them and any costs or charges deducted from their wages. This is designed in part to reduce confusion which many workers have about who they are engaged by, and what rights they have, when working via some of the more complicated gig economy and umbrella company arrangements which have proliferated in the last few years;
  • proposals for a new category of dependent contractor, simplified employment status test based on control, together with a reversal of the burden of proof (such that employers have to prove the workers are not “employees”) and abolition of tribunal fees for workers trying to claim employment status. Reversing the burden of proof in status claims would present many users of gig workers and other contingent workers with some problems. Such a measure in the 2014 Intermediaries tax regime has been instrumental in closing down a number of “Sole Trader” tax avoidance arrangements;
  • a right for all workers, not just zero-hour and agency workers, to request a more stable contract, providing more financial security for those on flexible contracts  (such that workers who regularly work a certain number of hours over 12 months can claim a right to such hours, and workers on site at a hirer for more than 12 months can request a direct contract of employment with the hirer – each of which proposals could have a substantial impact on major users and suppliers of agency workers);
  • asking the Low Pay Commission to consider the impact of higher minimum wage rates for workers on zero-hour contracts;
  • considering repealing laws allowing agencies to employ workers on cheaper rates (in other words the so-called Swedish Derogation from the Agency Workers Directive);
  • taking action to ensure unpaid interns are not doing the job of a worker;
  • proposals to enforce vulnerable workers’ holiday and sick pay for the first time, with HMRC having enforcement powers (as is the case already with NMW);
  • introducing a new naming scheme for employers who fail to pay employment tribunal awards;
  • possible regulation by the Employment Agency Standards Inspectorate of employment intermediaries including umbrella companies and of compliance with equal pay rights under the Agency Workers Regulations;
  • proposals to accredit payment intermediaries tasked with ensuring payment of “the right tax” when working through platforms etc.
  • clarity about what exactly will count as working time to which NMW applies;
  • requiring “employers” to report regularly about the types of employment models they use (which may include self-employment , zero hours and umbrella models); and
  • quadrupling employment tribunal fines for employers showing malice, spite or gross oversight to £20,000 and considering increasing penalties for employers who have previously lost similar cases. 

The government is also seeking to raise awareness of existing rights in the business environment with plans to:

  • launch a task force with business to promote awareness and take-up of the existing statutory right to request flexible working;
  • make sure new and expectant mothers know their workplace rights and raise awareness amongst employers of their obligations; and
  • launch a new campaign to encourage more working parents to share childcare through the existing right to shared parental leave.

The announcement also confirms the government’s existing commitment that workers receive the right to the national minimum wage reaffirming its National Minimum and Living Wage Campaign which seeks to drive awareness and compliance and that this year it will spend a record £25.3m on minimum wage enforcement.

What was rejected from Taylor?

As was widely predicted the government has rejected the proposal in the Taylor review to reduce the difference between the National Insurance contributions (NICs) of employees and the self-employed following the 2016 Budget.  Changes to rates of tax or NICs for employees or self-employed are not in the scope of the reforms the government is considering.

So will ‘millions… benefit from enhanced rights’?

Potentially – but no immediate change is on the cards and the real impact on the individual worker will be subject to the following four consultations which the government is launching today:

  • enforcement of employment rights recommendations;
  • agency worker recommendations;
  • measures to increase transparency in the UK labour market; and
  • employment status – which will examine options, including new legislation to make it easier for both the workforce and businesses to understand whether someone is an employee, worker or self-employed and to determine the rights and tax obligations which apply to them. The government has also indicated that it ‘will work with industry to consider ways of encouraging the development of online tools for self-employed people to come together and discuss the issues that are affecting them’.

It will be the analysis of the content of these consultations and the responses to them which will be key in understanding how the government intends to deliver on Taylor.

Likely timescales for new legislation – our view

There has been some immediate criticism of the government’s announcing more consultation, meaning that these changes will not come into effect for some time. However it should be noted that in areas like employment status, action to change the law would require new legislation to be put before parliament rather than instant government action.

Whilst no specific timescales are set for these proposals to become a reality, against the backdrop of Brexit and the potential skills gap which was highlighted in the Autumn budget, it seems likely that Theresa May will try to push these recommendations up the agenda.  The reforms are a vital part of the Industrial Strategy, the government’s long term plan to build a Britain fit for the future by helping businesses create better, higher-paying jobs in every part of the UK. Indeed, the government states that it sees itself at the forefront of tackling the issues the modern world of work gives rise to, seeing the UK as being ‘one of the first countries to address the challenges of the changing world of work in the modern economy’ and preparing employment rules to reflect the new challenges. With the complexities of Brexit, rights to free movement and trade deals lurking behind her, perhaps this is one small step to showing domestically and internationally that the UK remains open for business.  So will ‘millions’ benefit as the government headline states?

But many commentators will consider that Brexit will dominate the legislative agenda in the next year or so and that the likelihood of early legislation in the more complex areas covered by the consultations is low.

What law changes are most likely to happen and which will be harder to implement – our view

The Swedish derogation will be abolished.

Legislation to clarify employment status will take time. There have been many discussions about this sort of measure over the last few years in many countries (not least to assist in tax collection). Many commentators feel that if it were easy to resolve uncertainty about status with new legislative wording, the UK and other countries would have implemented this sort of change many years ago. It is telling that today’s consultation document about this has 64 questions, demonstrating the complexity of the issue.

As we said in June 2017, if it becomes easier for individuals to bring employment status claims, there will be more status cases by lower paid workers claiming extra rights. We suspect the employment/worker status “test” will continue for some time  to revolve around the age old issues of (i) control as to how work is done and (ii) whether there is an obligation to provide personal service. Hirers, platforms and staffing companies may face increased costs relating to some of the “grey area” workers they currently engage on a self-employed basis. Ultimately we think it unlikely that actual or perceived abuses of more vulnerable work-seekers will be eradicated until end users are made liable on some sort of chain-liability basis. Without that there will be a never-ending parade of here-today gone-tomorrow intermediaries who engage individuals without providing full rights and then disappear when challenged.

Umbrella companies face being much more regulated but at the same time may have opportunities as authorised payment intermediaries for gig working arrangements.

What can you do now?

Employers should not use the consultations as an excuse to put the government’s agenda announced today in the ‘wait and see’ box, but instead take stock now of how the government’s agenda, together with any findings coming out from their work on the gender pay gap, reflects on their current workplace practices. The government announcement confirms that ‘quality work’ will be considered by the government when agreeing new sector deals with industry, encouraging employers to show how they are investing in their workforces to improve productivity.  Indeed, particularly around some of the softer initiatives supporting awareness of flexible working, maternity and shared parental leave rights, it may be appropriate to consider whether there are any steps that could be taken now to reflect the current direction of travel.

As we predicted in June 2017 intermediaries and hirers will need to think about how to offer at least some of their zero hour workers guaranteed regular work. Zero hours workers will be given some new rights. Online platforms and staffing companies will have to consider carefully the impact of this on their business models. We may see staffing companies try to offer regular work by moving further towards an outsourcing model including the provision of whole teams or shifts in certain industries (which can at the same time offer commercial and regulatory benefits).