Employment status
Minimum wage, holiday and sick pay
Zero-hours contracts and flexibility
Agency workers
What next?


The Review of Employment Practices in the Modern Economy, commissioned by the prime minister last October and chaired by Matthew Taylor, chief executive of the Royal Society for the Encouragement of Arts, Manufactures and Commerce, has produced its long awaited report.

Media coverage has focused on the report's implications for the gig economy, but Taylor's recommendations – if carried forward into legislation – will have profound implications for all employers. These will apply particularly to organisations using contractors, zero-hours workers and agency workers, but also more broadly in areas such as sick leave and flexible working.

The report – which runs to 115 pages – contains extensive analysis of the UK jobs market and how it is likely to evolve in an era of automation and robots. With a clarion call to politicians to ensure that all work is "fair and decent with realistic scope for development and fulfilment", and an acknowledgement that many individuals appreciate the flexibility that new ways of working afford to them, Taylor makes several significant proposals for reform.

Employment status

There are three main statuses under employment law, generally referred to as employee, worker and self-employed. Taylor does not propose changing this, but concludes that 'worker' is not an optimal term and should be re-labelled 'dependent contractor'. He argues: "[T]he Government must make legislation clearer. The employment statuses should also be distinct and not open to as much interpretation as currently, nor be so ambiguous that only a court can fully understand the basic principles." He adds that the government "should replace the minimalistic approach to legislation with a clear outline of the tests for employment status, setting out the key principles in primary legislation, and using secondary legislation and guidance to provide more detail".

As for how to get to this position, Taylor advocates a close look at the test for worker status, arguing that the absence of a right to work personally (ie, a right of substitution) should no longer be a barrier to being a worker (or dependent contractor, as it would become). Instead, Taylor argues that the principle of control should be more important when determining dependent contractor status:

"…with the legislation outlining what it means in a modern labour market and not simply in terms of the supervision of day-to-day activities. We don't envisage a significant departure from the approach currently taken by the courts where control is often a key factor when deciding if someone is a 'worker' or 'self-employed'."

Here, Taylor alludes to recent cases in which, for example, the Court of Appeal ruled that an individual engaged by Pimlico Plumbers was a worker because the degree of control exercised over him was inconsistent with the company being his client or customer (for further details please see "Pimlico Plumbers are workers not self-employed").

For many organisations, particularly in the gig economy, establishing what constitutes 'working time' is a major challenge when grappling with the implications of worker legislation, not least when individuals may be making themselves available to multiple work providers at the same time. Taylor recognises this explicitly, concluding that if the national minimum wage (NMW) were to apply to individuals in this situation, "it is important that working time is sensibly calculated". He states:

"Platforms do not place limits on when individuals can log onto the app but no individual should be expecting to be paid for all the time that he or she has the app open (regardless of whether or not they are seeking work). For instance, it would clearly be unreasonable if someone could log onto an app when they know there is no work and expect to be paid."

Taylor argues for an alignment of the employment status with the tax framework "to ensure that differences between the two systems are reduced to an absolute minimum". The implication is that any dependent contractor would be considered an employee for tax purposes. Potentially a requirement to payroll all dependent contractors, this could have significant implications far beyond the gig economy.

The report goes on to make the following recommendations:

  • Dependent contractors should be entitled to a written statement of particulars akin to that which employers must provide to employees within two months of starting work. Taylor suggests that this should become a "day one" right for all, including employees.
  • The period for which an individual may not work without continuity of service being broken for statutory rights purposes should increase from one week to one month, and the situations in which a cessation of work can be justified should be clarified.
  • The Information and Consultation of Employees Regulations should be extended to cover dependent contractors, with the threshold of support for a valid request to introduce an information and consultation of employees forum being reduced from 10% to 2% of the workforce.

Taylor identifies employment tribunal fees as a barrier to individuals effectively enforcing their rights, and proposes that individuals are able to get an authoritative determination of their employment status without paying a fee. He suggests reversing the burden of proof in employment tribunal hearings where status is in dispute so that the employer must prove why the individual is not entitled to rights, rather than the other way around. The report also proposes aggravated breach penalties and costs orders against employers that unreasonably defend cases when they know that they are breaching the law.

Minimum wage, holiday and sick pay

Taylor recommends that the piece-rate NMW legislation should be adapted to ensure that dependent contractors "are still able to enjoy maximum flexibility whilst also being able to earn the NMW". He suggests that platforms should be able to compensate workers based on their output (ie, number of tasks performed) provided they can demonstrate through the available data that an average individual – working averagely hard – successfully clears the NMW with a 20% margin of error. The report goes on to say that "if an individual knowingly chooses to work through a platform at times of low demand, then he or she should take some responsibility for this decision" and suggests that this could be achieved through platforms giving individuals a real time notice about demand levels.

Taylor urges the government to consider carefully how this could be implemented to avoid abuse, taking into consideration issues such as regional variations:

"A key consideration will be that the individual is completely free to choose the time of work, and whether or not to accept individual jobs. This is very different, for example, to a situation where a mobile worker is being expected to travel between a fixed number of appointments, for which the National Minimum Wage would clearly apply."

Calculation of holiday pay and rights can be a particularly troublesome issue for organisations engaging individuals on an irregular-hours basis, with longstanding uncertainty over whether rolled-up holiday pay is lawful and significant practical challenges in administering holiday leave without it. Taylor tackles this, stating:

"As a general rule, annual leave entitlement equates to 12.07% of hours worked. We believe individuals should have the choice to be paid this entitlement in real time – known as "rolled-up" holiday pay. This would result in dependent contractors receiving a 12.07% premium on their pay. So in the case of someone being paid the National Living Wage of £7.50, their actual remuneration would be £8.41 an hour. Additional safeguards would have to be built in to ensure individuals did not simply work 52 weeks a year as a result, but we believe giving individuals this kind of choice will suit many working in casual arrangements and in the on-demand economy."

The report recommends a reform of statutory sick pay (SSP) to become a basic employment right, comparable to the NMW, for which all dependent contractors are eligible, regardless of income, from day one. It suggests that SSP should be payable by the employer and accrued on length of service, in a similar way to paid annual leave. Noting that "individuals with the relevant qualifying period are already entitled to have their job protected for a period of time when they are away for work for perfectly reasonable reasons, for instance, having a child", Taylor advocates a similar approach to sick leave. For example, individuals should have the right to return to the same job after a prolonged period of ill health.

Separately, it is proposed that Her Majesty's Revenue and Customs is given responsibility to enforce the NMW, SSP and holiday pay.

Taylor advocates portable benefits platforms as "ways for people who are self-employed or engaging in other non-traditional labour market activity to gain access to a range of non-statutory benefits and protections". This could be "third-party vehicles supporting gig economy businesses to make payments on behalf of an individual working through them" which "might cover benefits such as sick leave, holiday leave, occupational illness or injury, pension plans, and further training". He proposes that the government work with partners to develop such solutions with a view to supporting self-employed people better.

Zero-hours contracts and flexibility

Taylor suggests setting a higher NMW for hours which are not guaranteed in a contract – a reform that would be aimed at addressing concerns over zero-hours contracts. For example, if an individual is on a contract which guarantees only six hours' work a week, but is regularly asked to work more than that, he or she would be entitled to the standard NMW or national living wage for the first six hours of work and a higher rate for all hours in excess. Separately, Taylor proposes a new "right to request a contract that guarantees hours which better reflect the actual hours worked, for those on zero-hour contracts who have been in post for 12 months".

The report recommends that the government:

"consider how further to promote genuine flexibility in the workplace, with a view to supporting those in under-represented groups to reach their potential. For example it should consider whether temporary changes to contracts might be allowed, to accommodate flexibility needed for a particular caring requirement."

Agency workers

Taylor advocates taking steps to improve the transparency of information that must be provided to agency workers, in terms of rates of pay and those responsible for paying them. He also proposes that agency workers who have worked with the same hirer for 12 months are given a right to request a direct contract, with the hirer being subject to an obligation to consider it in a reasonable manner.

Significantly, the report proposes abolition of the so-called 'Swedish derogation' – the controversial provision in the Agency Workers Regulations 2010 which allows agencies to avoid matching end-user pay by employing agency workers in a way that allows for pay between assignments. Finally, it proposes that the Employment Agency Standards Inspectorate is given new powers to investigate umbrella companies and other intermediaries in the supply chain, and to ensure compliance with the Agency Workers Regulations.

What next?

Overall, Taylor has produced a lengthy shopping list of proposals for reform. If implemented in their entirety, these would have a significant impact on the employment landscape. However, it remains to be seen how much legislative bandwidth our Brexit-saturated minority government can find to put these into effect, and further consultation – particularly on the more controversial changes – seems inevitable before anything concrete emerges.

For further information on this topic please contact Colin Leckey at Lewis Silkin by telephone (+44 20 7074 8000​) or email ([email protected]). The Lewis Silkin website can be accessed at