The workplace is changing rapidly and so too is the way in which companies are engaging individuals to do their work. Ruth Buchanan, employment partner, and Sarah-Jane Gemmell, counsel – Ashurst LLP.
Organisations who operate in the so-called “gig economy” often engage individuals as self-employed contractors who work either freelance or on short-term contracts rather than in more permanent arrangements. It is estimated that approximately 1.3 million people in the UK work in the gig economy.
Depending on your point of view, such working arrangements can be seen as either offering complete flexibility to those individuals allowing them to fit work around their lives with the ability to pick and choose when they work, or alternatively they can be seen as exploiting individuals because companies do not offer them any of the protections or rights enjoyed by individuals who are engaged as employees and workers.
Whichever way you view the working arrangements on offer, companies operating in the gig economy are facing challenges with their workforce structures on a number of fronts.
Challenge 1: Employment status
There are currently three types of employment status in UK employment law: an employee: someone who works under a contract of employment and enjoys the full range of employment protections; a worker: someone who has neither a contract of employment nor is genuinely self-employed, but personally performs work or services under a contract. A worker is entitled to certain employment rights, such as the National Minimum Wage, but these are not as extensive as those that apply to employees; and an independent contractor: someone who is genuinely self-employed and provides services to clients as part of a business on their own account.
Where an individual’s employment status is not clear-cut, the Courts have established a range of tests and factors to assist in making decisions on a case by case basis.
Household names such as Uber, Citysprint and Addison Lee to name a few have hit the headlines recently. There has been much judicial scrutiny on the employment status of the individuals they engage, with the Employment Tribunals so far consistently finding that these individuals are not self-employed but workers and therefore entitled to such rights as holiday pay and the national minimum wage. Uber’s appeal against the decision that its drivers are workers has recently been heard by the Employment Appeal Tribunal and this judgment is waited with interest.
The trend of these decisions are an incredible challenge to the business models operated by some companies in the gig economy. Not only will they see their cost base rise significantly because they have to provide employment protections, but they will also have to increase their staffing levels to cover, for example, holiday periods.
Aside from the judicial activity in this area, a number of governmental inquiries have also been launched and in particular the “Taylor Review” of modern employment practices (the “Review”) reported in July.
The Review is in favour of the three tier approach to employment status mentioned above being retained as it is helpful to have an intermediate category covering casual, independent relationships with a more limited set of key employment rights attaching. However, it proposes that the term “worker” should be re-named as “dependent contractor”.
It is also recognised that applying the national minimum wage to those in the gig economy is a challenge as it is difficult to say when an individual is genuinely available for work and not simply logged into an app, for example.
The Review recommends that an adapted version of the piece rates legislation that currently exists should apply to dependent contractors; this is where workers are paid for what they produce rather than the hours they work. A fair piece rate for a task would be established (and notified to workers in advance) that would mean an average person working averagely hard could clear the national minimum wage with a margin of error of 20 per cent.
The Government has said that it will respond to the Review by the end of the year. Implementing all of the recommendations would be a challenge for the Government; so only time will tell what impact the Review has on the business models being operated in the gig economy.
Challenge 2: Tax legislation
Rather confusingly individuals can be self-employed for the purposes of the tax legislation, but be a worker for the purposes of the employment legislation. This is because the employment rights legislation adopts the three tier approach (outlined above) but the tax legislation only recognises an individual’s status as either an employee or an independent contractor.
The Review, however, suggests that those differences should be reduced to a minimum by treating all workers/dependent contractors for employment law purposes as employees for tax purposes. If there is a change to the tax legislation in the way suggested, this will be a significant challenge to companies operating in the gig economy as it could raise the corporate NICs bill for some firms.
Challenge 3: Brexit
The Government triggered the formal Brexit negotiation process by providing the EU with the required notification under Article 50 of the EU Treaty on 29 March this year. The impact of Brexit on companies operating in the gig economy with a mobile workforce or who rely on EU migrant staff is heavily dependent on the relationship which is negotiated with the EU. One of the key issues to be resolved is whether new immigration rules will apply restricting economic migration to high skilled/high value migrants. This could be problematic for those companies who rely on foreign nationals to make up a significant proportion of their workforce. For affected employers, now is the time to start considering whether the way in which individuals are engaged needs to be reviewed and enhanced in order to attract a more diverse workforce.
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