This is the government's latest response to the Matthew Taylor review on modern working practices (Taylor Review), and as such, there are no real surprises for businesses in the government's proposed reforms. Indeed, the government has always maintained its commitment to legislate for the modern workforce, whether operating in the gig economy or through more traditional employment models, and has stated clearly its commitment to not only maintaining workers' rights as the UK leaves the EU , but to enhancing them.
Ensuring workers can 'access fair and decent work'
The package of commitments is centered around ensuring that workers can 'access fair and decent work', reflecting concerns over new 'flexible' working models, often used in the gig economy but also incorporated into more traditional employment models. Whilst the link between having a flexible labour market and creating the right conditions for innovation and growth is acknowledged, these flexible working models can leave more vulnerable workers open to abuse and it is this, and the escalating number of disagreements around the employment status of individuals, that the government is seeking to address with its changes. With increasing numbers of individuals seeking minimum 'worker' rights, such as a minimum wage, statutory holiday etc. through the courts, and reports of action now being taken through 'strikes' and protests, most recently in the gig economy and retail sectors, the government's decision to intervene is understandable.
'Day one' statements for all, extending the holiday pay reference period and protection for agency workers
The reforms being trailed by the government on Monday 17 December sought to improve clarity around employment status and to adapt to the emergence of new employment relationships by:
- extending the right to a day one written statement to workers (instead of just employees), and adding to the information employers are already required to provide requiring confirmation of: how long a job is expected to last, notice requirements, eligibility to sick leave and pay and details of other types of paid leave, such as maternity and paternity leave, as well as any probationary period, remuneration details and specific days/times of work;
- extending the holiday pay reference period from 12 to 52 weeks, ensuring those in seasonal or atypical roles get the paid time off they are entitled to;
- lowering the threshold required for a request to set up workforce Information and Consultation arrangements from 10% to 2%;
- repealing the so-called 'Swedish derogation' – which currently allows agency workers to be employed on cheaper rates than permanent counterparts so long as they are paid between assignments, but has allegedly been abused by some employers;
- quadrupling maximum Employment Tribunal fines for employers who are demonstrated to have shown malice, spite or gross oversight from £5,000 to £20,000; and
- suggesting that suppliers of agency workers will have to take responsibility for the payment arrangements used by umbrella companies below them in the supply chain.
However, no further clarity yet on determining 'employment status'
The Taylor Review recommended that renewed effort should be made to align the employment status frameworks used for the purposes of employment rights and tax to ensure that the differences between the two systems are reduced to an absolute minimum. The government acknowledges that this is the right ambition and has committed to bring forward detailed proposals on how the frameworks can be aligned. The lack of clarity created by the existing employment status tests is also recognised and the government announcement states that it will legislate to improve the clarity of the employment status tests 'to reflect the reality of the modern working relationships'. However, the government acknowledges that defining employment status and ensuring legislation is fit for purpose in a changing world is not straightforward, which was a point strongly made by Osborne Clarke in the Taylor Review process. Acknowledging the inherent difficulties in enshrining in statute a test accommodating any number of factual matrices, the government has commissioned independent research to find out more about those with uncertain employment status, to help it understand how best to support them when bringing forward legislation; however, given the reforms to IR35 in the private sector coming into force in April 2020, the government may be seeking to bring into force new legislation by this point.
One thing does seem clear about the direction of travel on employment status tests: the government clearly feels that the so-called "right of substitution" should no longer play a key part in determining whether someone has employment or workers status for employment law (or tax) purposes – instead other factors, especially "control", will be key.
What else is in the 'Good Work Plan'?
The Good Work Plan also announces a number of other changes to take forward both the recommendations of the Taylor Review and the Director of Labour Market Enforcement’s Strategy. Highlights include changes:
- requiring that tips left for workers go to them in full;
- requiring all employment businesses to provide every agency worker with a Key Facts Page to provide transparency in agency worker contracts, to include: the type of contract, the minimum rate of pay, who will pay them and how, and any fees to be deducted by intermediaries like umbrella companies;
- enforcing vulnerable workers’ holiday pay for the first time;
- introducing a new right to a payslip for all workers, including casual and zero-hour workers;
- introducing a right for all workers, not just zero-hour and agency workers, to request a more fixed working pattern after 26 weeks of service, providing more financial security for those on flexible contracts;
- introducing a new naming scheme for employers who fail to pay Employment Tribunal awards, as well as other reforms to improve the experience of those using the justice system (backed by £1bn of investment);
- taking further action to ensure unpaid interns are not doing the job of workers;
- bringing forward proposals for a single enforcement body to ensure that vulnerable workers are better protected;
- introducing legislation to expand the remit of the Employment Agency Standards Inspectorate to cover umbrella companies – with action to focus on situations where agency workers have not received adequate pay; and
- consulting on salaried hours work and salary sacrifice schemes to ensure National Minimum Wage rules do not inadvertently penalise employers.
So what should employers be doing now?
We are now waiting for the government to confirm the legislative detail and the timeframe in which it is seeking to introduce these new statutory rights. Contrary to some press reports on the day, no new statutory rights have come into force as of Monday 17 December. Indeed, the timing is a little surprising given the immediate challenges of Brexit facing the Prime Minister and her government. However, this may be the government's effort to reassure businesses and individuals alike that, whatever the position the UK finds itself in on 29 March 2019, the government is taking the steps necessary to create a labour market that is prepared for boosting productivity and earnings potential in the UK and for facing the inevitable challenges for the UK economyWhatever the case, the government states that its reforms 'will cement the UK's status as a world leader in workers' rights now and well into the future and will be the first country in the world to address the opportunities and challenges of the gig economy and the changing world of work, and its impact on a modern economy'. The reforms are stated to form a key part of the government’s modern Industrial Strategy, 'a 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'.
In the meantime, employers need to be aware that change is coming, and that they will need at some stage, and sooner rather than later, to focus on the following:
- use of payment intermediaries known as umbrella companies in the staffing supply chain is under scrutiny – the government may end up making employers and intermediaries liable for what goes on below them in the supply chain. Employers need to work out to what extent their suppliers use them and, if so, what plans they have in place to be ready for the coming changes in the law (as well as various tax measures recently introduced to attack use of tax evasion and tax avoidance by some payment intermediaries);
- the proposed reforms aim to ensure that workers are aware of and provided with their basic employment rights. This means holiday pay will be claimed by those entitled to it, and the increased cost in the supply chain resulting from this should be anticipated;
- the likelihood that agency workers and other flexible workers will have a greater awareness of their rights, such that they will make more claims, with state enforcement (by a sizeable new enforcement body) of many rights;
- any self-employed (or personal service company) arrangements they have which are dependent (to avoid tax and employment liabilities) on so-called "rights of substitution" – the right of substitution seems to be of declining usefulness and instead employers and staffing companies will need to focus far more on whether there is control over what is done; and
- the extent to which engaging flexible resource on a so-called statement of work/defined deliverable basis will allow employers to avoid many aspects of the reforms (and the proposed new IR35 regime). Employers will need to review the extent to which such measures are appropriate and viable for them.