Taylor review recommends new workers' pay and rights
12th July 2017
In 2016, Theresa May commissioned Matthew Taylor to consider how employment practices need to change in order to keep pace with modern business models, such as the so-called ‘gig’ model which relies on those working flexibly on a self-employed basis.
Matthew Taylor and his panel have now published their recommendations, some of which are controversial. However, political realities have been transformed by the election and it is currently unclear whether, or how, they will be implemented.
Background to the Taylor review
Rising confusion over employment and tax status
There is confusion among some employers, workers and the media about the way employment rights apply to some, but not all, of those in work and about the relationship between employment rights and tax status.
Currently, a person’s entitlement to employment rights is determined by their employment status, which is one of the following:
- an employee - entitled to a full range of employment rights including the National Minimum Wage (NMW), annual leave, rest breaks, protection from discrimination, family leave, statutory redundancy pay and protection from unfair dismissal
- a ‘worker’ – entitled to some but not all employment rights including the NMW, annual leave, rest breaks, protection from discrimination at work, or
- a genuinely self-employed independent contractor – no entitlement to employment rights.
Whether an individual is an employee, a ‘worker’ or a contractor will depend on the circumstances and the application of relevant case law. In general terms, factors such as personal service, mutual obligations to provide and to accept work, subordination, the terms of the contract and other tests are used by Employment Tribunals (ETs) and the courts to determine employment status.
However, while the three status categories outlined above exist in employment law, only two operate for tax purposes. These are:
- employee - subject to PAYE and the employer pays national insurance (NI), or
- self-employed - responsible for paying their own tax and NI and PAYE exempt.
Confusingly, both a ‘worker’ and a self-employed independent contractor are typically self-employed for tax purposes – i.e who is self-employed is blurred, depending on whether the reference is to employment status or tax status. It means that a ‘worker’ can be self-employed for tax purposes while also being entitled to, amongst other things, NMW and paid holidays. It is important because an increasing number of self-employed gig workers are applying to ETs to argue that they have ‘worker’ employment status, not genuinely self-employed independent contractor status - in a bid to be paid holiday pay and the NMW.
The Taylor review recommends changes to employment status
The Taylor review is concerned that the above uncertainty over employment status is leading to some gig workers to miss out on ‘worker’ status and attendant basic employment rights including the NMW. However, it also recognises that if gig workers qualify for the NMW, the legislation is more attuned to paying the NMW on an hourly basis, whereas many ‘gig’ employers pay per task. One concern is that NMW processes and compliance may inhibit gig innovation and, potentially, lead to gig employers reducing worker flexibility to accommodate the NMW calculations.
In order to strike a balance between worker fairness, flexibility and gig entrepreneurship, the review recommends renaming ‘worker’ status to become ‘dependent contractor’ status. It wants the Government to go further and redefine the legislative tests for employment status, incorporating accepted case law guidance and, for example, redefining ‘worker’ status (as it is now) to place greater emphasis on employer control and less emphasis on the need for personal service (so that, according to the review, it is ‘harder for some employers to hide behind substitution clauses’). In addition, it calls for a ‘worker’ to have the right to receive a written statement of his/her terms and conditions (as an employee currently has) and for the Government to provide an online tool to determine employment status (akin to the existing tax status tool).
Turning to the issues highlighted previously concerning NMW processes and their fitness for the gig economy, the review recommends adapting existing NMW piece rates legislation. Currently, the NMW legislation provides that employers may pay a worker a ‘fair piece rate’ for a task performed. This is set at 20% above the rate that an average group of workers would take to perform a task (arrived at by assessing how many tasks, on average, they perform per hour). Given the online and data-rich nature of gig employment models, Taylor suggests that many could give real time piece rate pay information before workers decide whether to accept a task. In this way, when activities levels are low and the rate of pay per task drops below the NMW, then workers who knowingly continue to work are not paid the NMW.
Other Taylor recommendations: in summary
Zero hour contracts: The review recommends that the Low Pay Commission is tasked with considering the introduction of a higher NMW for those working hours that are not guaranteed as part of the contract. While this needs clarification, it is aimed at incentivising employers to schedule work and rely less on zero hour contracts. It wants the Government to make it easier for zero hour and casual employees to establish continuity of service, to remove some of the obstacles they encounter when qualifying for employment protections. Also, the review recommends providing a right to request a guaranteed contract for zero hour workers after 12 months.
Agency workers: Controversially, the review wants the Government to end the ‘Swedish derogation’ under the Agency Workers Regulations (the derogation provides an exemption from the right to equal treatment with regard to pay if the agency worker has a permanent contract of employment with the agency with certain minimum requirements). It also recommends providing a right to request permanent employment for agency workers after 12 months with the same hirer and that the Government legislate to improve the information which must be provided to agency workers before they accept work. The review recommends that the Government requires larger companies to report on the number of requests made (by zero hour and agency workers) and accepted, with the threat that they can be named and shamed if they repeatedly refuse.
Holiday pay: The review proposes extending the pay reference period to 52 weeks and giving a ‘worker’ the opportunity to receive rolled-up holiday pay. It calls for HMRC to take responsibility for enforcing holiday pay, as well as NMW and SSP.
Information and consultation: As well as general measures to encourage effective worker voice, the review calls on the Government to extend the existing Information and Consultation of Employees Regulations to include ‘workers’ as well as employees and reducing the threshold for triggering the Regulations from 10% to 2% of the workforce.
Employment tribunals: The burden of proof in employment status ET hearings should be reversed (so that the employer has to prove that the claimant is not an employee or ‘worker’), according to the review, and, where companies lose employment status claims based on broadly comparable facts more than once, it recommends making it an aggravated breach attracting a fine. It also calls for free initial adjudication on employment status to anyone who brings a case to a tribunal.
Tax and national insurance: The review suggests that a ‘worker’ should be treated the same as employees for tax purposes. It makes the broader point that businesses that rely almost exclusively on self-employed labour have the potential to gain significant market advantage due to the nature of our tax/NI system – as both the individual and their employer will pay less tax/NI if they are self-employed. The review supports treating different forms of employment more equally for tax purposes and, over time, greater contribution to NI by the self-employed. In return, state support for the self-employed should be extended so that those remaining areas of unequal access (such as parental leave) are removed.
Pension: The Government should explore improving pension provision to the self-employed, for example, auto-enrolment administered through the self-assessment process.
Statutory sick pay: The review wants the Government to reform SSP so that all workers qualify from day one and that it is paid by the employers and accrues on length of service, like holiday pay. It also wants to see new job protections for those on genuine ill health absence, along lines of maternity leave ‘return to work’ rights and protections.
The Taylor review has been criticised by trade unions as too ‘feeble’ and cautiously welcomed by some employer organisations. In fact, the review has a surprising breadth to its recommendations, some of which will surprise employers and raise concerns, for example, if the Government decided to adopt its proposals to treat a ‘worker’ and an employee the same for tax purposes and to remove the Swedish derogation.
Many of the review’s proposals require careful reflection and planning if they are to withstand legal and practical scrutiny. For example, how to redefine ‘worker’ status to really achieve certainty and how to provide for the lawful non-payment of the NMW in certain circumstances but not others (the proposal to permit the non-payment of the NMW where a worker knowingly decides to take on work even when the rate of pay at that time has dropped below the NMW). As such, the publication of the Taylor review marks the start of a potentially long and complex journey, not the end.