Taylor Review proposes dependent contractor status

A report into modern working practices has recommended the introduction of a dependent contractor employment status.

The Good work: The Taylor review of modern working practices report, published on Tuesday 11 July 2017, was commissioned by prime minister Theresa May in October 2016 to review current working practices and models to ensure they were fit for purpose within the modern workplace.

The review, which was led by Matthew Taylor (pictured), chief executive officer at the Royal Society of the Arts (RSA), analysed the implications of new forms of work, including the increase of the gig economy via digital platforms, explored employment rights and responsibilities, and also sought to understand whether the regulatory framework surrounding employment was still suitable when considering modern working practices.

The three main challenges that the report addresses are tackling exploitation and the potential for exploitation in the workplace, increasing the clarity around employment law and employees’ understanding of their rights, and aligning incentives that drive the labour market with the UK’s modern industrial strategy and broader national objectives.

The Taylor review recommends retaining the three-tier approach to employment status, which currently includes employees, workers, and self-employed individuals, but renaming those who are eligible for workers’ rights, such as the minimum wage, but that are not employees as dependent contractors. The new definition is designed to reflect more casual employment relationships while supporting those who are not genuinely self-employed.

When determining dependent contractor status, the review suggests placing greater focus on the principle of control and less on whether there is a requirement to perform work personally.

The report also recommends that there should be greater transparency around the employment law framework to help ensure that rights and responsibilities embedded into legislation are not misunderstood or exploited. The review has therefore recommended that the government should make it a statutory requirement to provide both employees and dependent contractors with a written statement on the first day of their job. This written statement should include the particulars of the job, such as pay and working hours, as well as what employment rights the individual can expect.

The report recommends that employment law be simplified so that individuals can more easily find out their employment status, and therefore what rights they are entitled to, for example holiday pay and the national minimum wage. The review suggests that there should be a clearer outline of the tests for employment status, with key principles set in primary legislation and secondary legislation providing further details.

The review also suggests that the government ask the Low Pay Commission (LPC) to advise on the impact of establishing a higher national minimum wage for hours that are not within a guaranteed contract, which could incentivise employers to schedule guaranteed hours as far as is reasonable.

It also proposes that messaging be made clearer around aspects such as holiday pay, and that the pay reference period for those without normal working hours be extended. At present, holiday pay for these workers is calculated according to hours worked over a 12-week reference period. The review suggests extending this to 52 weeks to account for seasonal fluctuations for casual and zero-hours work.

It also recommends that paid annual leave, which usually equates to 12.07% of hours worked, could be offered as rolled-up holiday pay instead. This would result in dependent contractors receiving a 12.07% premium on their pay. However, the review notes that safeguards would have to be implemented to ensure that dependent contractors did not then work 52 weeks a year as a result of this.

Furthermore, the review proposes that legislation be developed to give agency workers and those on zero-hours contracts the right to request to formalise the reality of the working relationship.

Other areas covered in the review include extending Information and Consultation of Employees (ICE) Regulations to improve employee engagement with business decisions, giving HM Revenue and Customs (HMRC) the responsibility of enforcing the basic set of core pay rights that apply to all workers, including national minimum wage, sick pay, and holiday pay, and amending the employment tribunal process to ensure it is more accessible for employees and allows them to get a determination on their employment status without paying fees. It also recommends that statutory sick pay be classified as a basic employment right, comparable to the national minimum wage.

In addition, the report calls for the burden of proof in employment tribunal hearings where employment status is in dispute to be changed so that the employer has to prove that an individual is not entitled to relevant employment rights.

Taylor said: “From time to time, people have asked me what, as chair of the review, I would see as success. While I would be proud to see our recommendations enacted and our strategic proposals fully debated, more than anything I hope this review will come to be seen as marking the point at which good work becomes an accepted and widely supported national goal.”

Nigel Mackay, solicitor at Leigh Day, said: “While the Taylor review includes some welcome suggestions, it is disappointing that it has avoided the more radical suggestions for change that might have helped workers in the gig economy and other precarious work.

“The review provides for a new category of employment status, known as ‘dependent contractor’, which it admits is essentially a relabelling of the current ‘worker’ status with few additional rights. Introducing new terminology in this way may only serve to confuse individuals as to what rights they do have.

“The review does include some positive ideas including penalties for serial offender employers which continue to deny workers their rights where colleagues have succeeded in a similar claim.  Alarmingly, however, some of the proposals may make the position worse for gig economy workers, contrary to the government’s suggestion that it is seeking to enhance workers’ rights. The review proposes that ‘platform’ employers could pay workers less than the minimum wage at times of low demand, undermining the purpose of minimum wage legislation to ensure a base level income for all workers.

“As well as this, in order to properly protect those in precarious work, we would have liked to have seen an extension of unfair dismissal rights to all workers. This would have addressed a major concern for many workers that they can be dismissed at will and left with no income for basic expenses.”

Tim Leaver, employment partner at Herbert Smith Freehills, added: “There has been much said about ‘missed opportunities’. One clearly missed opportunity was to define a new category of ‘gig worker’ which deals specifically with the unique challenges faced in that particular sector, rather than simply harmonising the HMRC and employment law tests, lowering the bar for a national insurance levy, and renaming it ‘dependent contractor’.

“That, in turn, would have given gig platforms far greater flexibility to offer additional protections and rights to their gig workers, through access to training and development and minimum guaranteed access to work and pay, without risking a finding of full worker (or ‘dependent contractor’) status or a requirement to pay national insurance contributions, both of which could seriously impact on the commercial viability of the gig model.”

Peter Cheese, chief executive officer at the Chartered Institute for Personnel and Development (CIPD), said: “We have been calling for greater clarity over workers’ rights for a long time, and therefore welcome the main thrust of the recommendations to ensure fairer treatment for gig economy workers without losing the flexibility which we know many of them value. We also support the proposals to clarify people’s employment status and rights and back plans to require employers to provide details of terms and conditions of employment to workers as well as employees.

“While we welcome the proposals for a stronger test of supervisory relationships in order to ensure workers get the benefits they are entitled to, we need to ensure that the framework for enforcing this is practical, otherwise we risk discouraging employers from providing flexible roles and opportunities that many people benefit from.”