New Employment Guidance Now Available

The Government recently published new guidance on employment status and employment rights as well as its response to the 2018 consultation on employment status.

At Crest Plus, we applaud all attempts to deliver greater clarity for employers, engagers, workers, and contractors, and we continue to contribute to doing our bit to help clarify current practices through our membership of the FCSA and through our commitment to offer training and consultancy to our valued clients.

If you are a recruitment business and would benefit from a face-to-face briefing on the new guidance, please get in touch. In the meantime, here’s our detailed summary.

Here’s a summary of what you need to know.

Aims of the new guidance

The aim of the new guidance published 26th July 2022 was to ensure businesses and individuals, particularly those in the gig economy, understand which employment rights apply to them.

It covers range of areas including:

• Employment status and how it determines the employment rights individuals are entitled to and for which employers are responsible
• Factors determining an individual’s employment status
• Special circumstances and recent developments in the labour market
• How employment status should be determined for different sectors

There are two separate pieces of guidance, one for individuals and the other for employers or engagers.

• Individuals – to help people understand their employment status so that they know their rights, can have informed discussions with their employer about them, and can take steps to claim them and have them enforced where necessary
• Employers or engagers – to help them understand individuals’ employment status so they comply with the law, helping ensure individuals receive the rights they are entitled to, and to avoid unnecessary disputes and associated costs.

Definitions

Whilst there are three main types of status for employment rights, explained below, the guidance stated that employment status will be mainly governed by the reality of the relationship between the individual and the organisation. The absence of a written contract or the fact that a contract between the 2 may specify a particular status is not conclusive if that does not correspond to what happens in reality.

• an employee who has the most rights and responsibilities.
• a worker – sometimes referred to as ‘limb’ workers who have fewer rights and obligations. The aim of the limb worker status is to extend the coverage of certain employment rights to a wider group of individuals than just employees, protecting a larger number of individuals who are in dependent working relationships but are not employees.
• a self-employed person who has the least protection but also tends to have fewer personal obligations and have significant flexibility in their work and/or delivers a service to a customer or client as part of a business or professional undertaking.

Tax & National Insurance

The employment status framework for tax and National Insurance is separate to the employment rights framework and comprises only two categories: employee and self-employed.

The guidance states that the facts and circumstances of the engagement determine what employment status an individual has, rather than a decision by themselves or their engager to assign them a specific employment status, or belief that they have a particular status.

Freelancers, contractors, consultants, and interims

There is no definition of these categories in legislation. Although freelancers, contractors, consultants, and interims are often self-employed, they could be either self-employed, a limb worker or an employee depending on the reality of the relationship, whether they work for a client or if they are employed by an agency or umbrella company.

Agency workers

An agency worker will have a contract with an agency but work temporarily for a hirer. Agency workers may qualify for employee or limb worker employment rights depending on their relationship with their employer. Agency workers are usually employed by the employment business itself unless an intermediary is involved (i.e. an umbrella company).

Agency workers receive certain protections, irrespective of whether they are an employee or a limb worker.

Employment tests

The guidance reinforced the three areas which test employment status – personal service, control and mutuality of obligation which must be satisfied for an individual to be classed as an employee. The tests are set out as follows:

• personal service – the employee has to do the work themselves (there may be a limited right to send someone else). If the individual can send anyone else in their place (with no restrictions) that will not be personal service and the individual will not be an employee. However, even if there is a contractual right to provide a substitute but the parties have no intention of relying on it and/or it does not reflect how the agreement works in practice, this does not prevent personal service from being established.
• control – the employer is in control of the employee. Control is best understood as how much freedom the individual has to decide for themselves over how, where, and when the work is done. Day to day control of work is not a requirement, but the employer must have ultimate control by retaining a right to give reasonable instructions and for the employee to follow them or be at risk of disciplinary actions up to and including dismissal.
• mutuality of obligation – is a special kind of two-way responsibility – this will be present during any period when the employer must seek to provide work and the employee must do the work provided. An individual is not necessarily an employee during periods when they are not working if there is no commitment to accept further work which may be offered and if there is a lack of contractual or practical mutuality of obligations existing between the parties

There are other aspects that can be taken into consideration including financial risk, integration into an organisation, provision of mandatory equipment, how someone is paid and whether they have to work on an exclusive basis. These all have a bearing on an individual’s employment status.

The ICAEW (Institute of Chartered Accountants of England and Wales) responded to the guidance by calling for an informed national debate to determine sustainable long-term solutions for employment rights and tax.

ICAEW’s Tax Faculty recommended that the review should:

• Consider how income tax and NIC might be changed to reduce the disincentive to classify workers as employees, and to make the expenses regime fit in with new ways of working
• Simplifies the definition of employment status, and
• Covers all four nations of the UK as NI is currently slightly different.

ICAEW stated: ”Although rates of tax are out of scope for this review, ICAEW would expect the structure of the tax system to be considered given its critical impact on the labour market. In particular, the cost of employer’s NIC is what discourages hirers to classify workers as employed. In addition, the move to remote working means that the expenses regime for those working from home needs updating.”

The Tax Faculty went on to state that employment status is also currently very difficult to determine and go on to add that this has not been helped by recent Court of Appeal cases, which have highlighted its complexity but not provided clarity. They also find it confusing that there are also multiple employment statuses in employment law – including separate ones for Northern Ireland – but only two for tax purposes.

However, it looks unlikely that a review will take place any time soon. The government concluded that:

• The benefits of creating a new framework for employment status are currently outweighed by the potential disruption associated with legislative reform. Although such reform could help bring clarity in the long term, the government is worried that it may create cost and uncertainty for businesses in the short term, at a time where they were focused on recovering from the pandemic.
• The lack of consensus around alignment between tax and employment rights, the ongoing economic recovery from the pandemic, and the wider economic context means that now is not the right time to bring forward proposals for alignment between the two frameworks. The government stated it would, however, work closely with stakeholders to explore longer-term options to improve the employment status system for tax to ensure it was clear and usable for all parties.

If you have any queries regarding employment status matters please contact our Account Management team on 01244 684700 or by email: [email protected].