Last year, the Prime Minister asked Matthew Taylor of the RSA to carry out a review into modern working practices. He and his panel carried out months of research and received submissions from employers, lawyers, individuals, trade unions and organisations such as the CIPD and the Law Society. The findings of the Review were published last week. What is clear is that, if accepted, the proposals will mean changes not just for gig economy workers, but for all employers.
The Review is not just about changes to employment law; although the proposals include amendments (some of them very detailed), the writers of the Review believe that everyone should be entitled to fair and decent work, and that the best way to achieve this is through responsible corporate governance, good management, and strong employee relations. Better, more sustainable, business.
The report is 116 pages, and a short article cannot hope to capture all the proposals. However, we set out here the key recommendations of the report and assess their likely impact.
A British way
The UK has one of the most flexible labour markets in the world, with much lighter protections in place for individuals compared to, for example, France or Germany. The UK’s regulation of temporary work is less strict than in France or Spain. Flexible labour markets tend to enjoy higher employment rates and lower unemployment than those with more rigid approaches and (according to 2014 CBI research) over many decades have better protected the labour share and delivered more real terms wage growth. The UK currently has record levels of employment and its lowest unemployment rates since 1975.
The UK was among the first countries to experience the original Industrial Revolution. With Brexit, there is a pressing need to think ahead of the curve and set out a sustainable approach to the Fourth Industrial Revolution. The balance of flexibility with rights and technology with human approaches seeks to provide continuity, and to enable the UK to generate new opportunities. The proposals may help the UK provide a good labour market to compete for international investment, without risking European trade sanctions for undermining EU rules or worker rights. They include:
- Retaining the UK’s three tier approach to employment status, but renaming those workers who are not employees ‘dependent contractors’
- Proposals to ensure that gig economy workers are paid properly for the work they do through national minimum wage changes
- Allowing rolled up holiday pay for dependent contractors
- Making statutory sick pay a right for all
- Better information sharing and transparency
- Quick and cheap determinations of employment status
Workers – or dependent contractors?
At present, the UK has a three-tier approach to employment status: employees, workers (a broad category which can include, but is not limited to, employees) or self-employed independent contractors. The majority of those working in the UK labour market are employees required to perform work personally and who have no dispute with their employer on status. This will not change.
This approach needs to adapt for emerging business models – including Uber, Deliveroo and other platforms. And also increasingly including providers of professional services. The line between worker and self-employed is unclear for some people, and this lack of clarity risks vulnerability and exploitation.
The Review recommends that those workers who are not employees should be renamed ‘dependent contractors’, to make their position clearer. This is not a new status, but it is not clear (from the Review itself, which continues to use the worker term in its later chapters) whether this tag will remain in use as an umbrella term for both employees and dependent contractors.
In a variation on the saying about looking and quacking like a duck, the Review says that the absence of a requirement to perform work personally is no longer an automatic barrier to basic employment rights: “Ultimately, if it looks and feels like employment, it should have the status and protection of employment”.
Flexibility, pay and benefits
Flexibility is both a strength and an obvious risk: “being able to work when you want is a good thing; not knowing whether you have work from one day to the next when you have bills to pay is not.” There is genuine encouragement for the right kind of flexibility, without singling out tech-based models for unfair regulation or benefits.
Gig economy workers/dependent contractors are entitled to the national minimum wage (NMW), but it can be difficult to define their working time. The Review proposes that the government “should adapt existing piece rate legislation [currently used for example, for agricultural workers] to ensure those working in the gig economy are still able to enjoy maximum flexibility whilst also being eligible to earn the NMW.” Platforms would be able to compensate workers based on their “output” not just time spent provided the platform can demonstrate through available data that an average individual, working averagely hard, would clear the NMW with a 20% margin of error. If, despite this, individuals knowingly choose to work through a platform at a time of low demand, they do so at risk of lower pay.
This has attracted union criticism, but may be a practical way of dealing with the problem of workers running multiple apps simultaneously (see our recent article on this).
The Review recommends the Low Pay Commission consider a higher NMW rate for hours that are not guaranteed as part of the contract. Businesses could still offer zero-hour or short hours contracts, but any hours worked over the agreed level would be paid at the higher rate.
Rolled-up holiday, unlawful for workers at present, should be permitted for dependent contractors, and the pay reference period to calculate holiday pay should be increased from 12 to 52 weeks, to iron out seasonal variations. This would mean an additional 12.07% of wages could be added to each pay packet instead of holidays. The right to paid holiday is a health and safety measure, so checks would have to be put in place to prevent dependent contractors from working 52 weeks of the year. There is no suggestion that this would be extended to employees, but many businesses would welcome the right to roll up holiday pay for other staff. This would represent a possible diversion not just within the two tiers of workers who are not self-employed, but from EU law – this might be the first divergence from Prime Ministerial statements on maintaining EU based rights intact post-Brexit.
The Review panel commented that it was perverse that an employer should be liable for up to six months’ SSP for an individual who has only worked for them for a very short period of time. It has therefore recommended that SSP should accrue with length of service, in the same as holiday entitlement, but would be available to all regardless of earnings.
Tax law and employment law
The differences between tax and employment law are a source of confusion for many. The government should aim to make “self-employment” the same for both. Until that has happened, where a tax tribunal makes a finding of employment, it should also be binding for employment law purposes, and vice versa. This is a sensible solution to perennial confusion – but more detail will be needed.
A self-employed person pays lower National Insurance contributions than an employee, and historically this meant that they would receive fewer contributory benefits in return. Today, the self-employed receive similar benefits. The Review considers that this is not justified or sustainable, and leads to tax avoidance. The principles underlying the proposed NI reforms in Spring 2017 were correct, and both levels of contributions and entitlement (especially parental leave) should be moved closer to parity between the self-employed, dependent contractors and employees. Businesses should structure their workforces appropriately in all the circumstances, without the tax position distorting that position.
Agency workers, umbrella companies and other intermediaries
Agency workers play an important part in a flexible labour market. However, there is increasing evidence that some companies rely on temporary workers to fill long-term positions and in some cases, agencies force agency workers onto contracts or to use umbrella companies whose compulsory administration fees would be unlawful if demanded directly by an agency.
Under the Agency Workers Regulations 2010, an agency worker who has performed the same role with the same hirer for 12 or more continuous weeks is entitled to the same “basic working and employment conditions” as they would have been entitled to for doing the same job had they been recruited directly by the hirer. However, the Regulations permit an exception (the Swedish derogation) to this rule if the agency worker has a permanent employment contract with the agency which gives them pay between assignments.
The Review was concerned by evidence showing that agencies were forcing workers into pay between assignments contracts at the start of an assignment, or after 11 weeks, and recommends that the Swedish derogation be repealed.
The Regulations should be amended to improve the transparency of information given to agency workers about rates of pay and those responsible for paying them. After 12 months with the same hirer, an agency worker should have the right to request a direct contract of employment, and for the hirer to consider the request in a reasonable manner.
The changes to use of agencies, agency workers and umbrella companies will make a difference to working practices in the sector and the Recruitment and Employment Confederation have already said that they disagree with any changes to the Swedish derogation, and would be concerned about any changes leading down to a watering down of individuals’ rights, and uncertainty for business.
Transparency and the case for better business
“The Review believes firmly that the tone for fair and decent work is set at the top of an organisation, reflecting the demands of shareholders and consumers and extending out in to the workforce and the wider supply chain. If more employers behaved as the best do, the long tail of lower productivity in the UK could be considerably shorter.”
All employees and dependent contractors should receive a statement setting out the details of their contract, and their statutory rights, on day one of their work. This is not just red tape: since businesses value certainty, there are long term gains from providing written terms from the very beginning.
An indication of employment status should be available through a new free to use online tool, similar to the current tax Employment Status Indicator, and also advice and information on entitlement to rights.
The Information and Consultation of Employees Regulations 2004 (ICE Regulations) require UK-based employers with at least 50 employees to set up national works councils, or other information and consultation arrangements, if a valid employee request is received from at least 10% of the employees in the undertaking. Despite this, only 14% of workplaces in organisations with 50 or more employees had a works council in 2011. Over the next year, the government should examine the effectiveness of the ICE Regulations, and reduce the threshold from 10% to 2% of the workforce. Some employers will see this as an alternative to unionisation or as a safety fuse to social media and brand-damaging campaigns. For others, there are challenges to their engagement strategies.
The government should also work with other organisations, such as Investors in People, Acas and trade unions, to promote better employee engagement and workforce relations, especially in sectors with a greater proportion of casual employment.
Transparency of information is vital to achieve this aim. Larger employers are already required to publish modern slavery statements and gender pay gap information; the Review proposes similar ‘better business’ solutions based on board and consumer engagement. Those businesses beyond a certain size should also be required to publish their model of employment and use of agency services and how many requests they have received and accepted from zero hours workers for fixed hours and agency workers for direct employment.
HMRC already enforce national minimum wage and SSP entitlements and in 2015/16, HMRC dealt with other 2,500 NMW complaints. HMRC should assume responsibility for enforcing holiday pay as well – but only for the lowest-paid workers, not those who can afford to go to tribunal, and to stamp out exploitative unpaid internships. To do so, it will need additional resources.
The Review notes that tribunal fees are seen by some as a significant barrier to bringing a case, and says, “With regret we recognise that it is unlikely that the Government will move to abolish these higher fees but we do ask that the Government continues to keep the level of the fees under review.”
An atypical worker could pay tribunal fees, only to discover they do not have the right to bring a claim. The Review suggests that the balance of proof be shifted to the employer on status claims (so it is for the employer to prove that the individual is not an employee or dependent contractor), and goes on to say that preliminary questions of status should be resolved in quick, early and free tribunal hearings, with the dependent contractor or employee then paying fees to continue their claim once their right to do so has been established. For businesses, the presumption that employer or worker status exists is perhaps not much more than an extension of current experience, but will require them to consider from the start what their business model should be and plan accordingly.
The Review proposes that employment tribunals be obliged to consider penalties and uplifts in compensation if employers have already lost an employment status case on similar facts. This would be a disincentive to ignore the law and fight every case, forcing businesses to decide quickly how robust their model is, and move away from regulatory arbitrage or litigation.
Health and happiness
Not all self-employment is the same, and some of the self-employed are also working as employees. The government should offer greater support to those who are self-employed and encourage them to plan for the future by working with partners to create new WorkerTech (“a wide range of tech-enabled innovations that support working individuals to achieve a range of aims”, including information sharing, and calculating and accessing benefits) products, and to give self-employed people the opportunity to come together and discuss issues.
Advice on self-employment should be available through careers advice services, Jobcentre Plus and National Careers Service advisers.
The government, and the Institute of Apprenticeships, should consider how apprenticeships can work for atypical workers, including agency workers, and that the Apprenticeship Levy should be used for other forms of training besides apprenticeships.
The Review says that the government should consider as part of the planned review of flexible working legislation in 2019 how to promote genuine flexibility in the workplace, including extending it to temporary changes in a contract not just permanent (for example, to cover short-term caring responsibilities).
What is missing from the Review?
There is less than expected on pensions, and also on immigration. Platforms and other work providers will still not be required to match the obligations on current employers to carry out ‘right to work’ checks. Many platforms already value trust and verification where they provide personal services like beauty therapies, care and cleaning, but there is no mandatory immigration law burden added. The Review recognises that innovative WorkerTech solutions could make it easier to give benefits to non-employees, but is silent on whether their provision would, from the point of view of business, jeopardise status and their business model. A statement that this would not have any impact would have given certainty to employers that they could “do the right thing” for their people.
Some are disappointed by the proposals, arguing that an opportunity has been lost. The renaming of those workers who are not employees as “dependent contractors” has taken a great deal of attention. Not everyone agrees that the name change is necessary, but Matthew Taylor has been clear that there is no change to the underlying three-tier approach to employment status in the UK. If the name change is to be taken forward, it will be necessary to redraft existing UK legislation – “worker” includes employees, but dependent contractor will not.
However, the Review is so wide-ranging that some of the less-showy, but important, detail has been missed. The recommendations on agency workers and umbrella companies, if taken forward, will affect business practices in this sector. Changes to employment law, such as the definition of continuous employment and the right to a “section 1 statement” of employment particulars from day one will affect all employers. In our view, the UK is seeking a grown up approach to better business which de-bugs employment law and encourages sustainable practice.
Despite the publicity, and the launch attended by the Prime Minister, the report contains only recommendations. The proposals will now need to be considered and those on which the government is willing to act (in a Parliament with a much reduced majority and with Brexit to take up a great deal of Parliamentary time) will first need to go out to consultation before any bills can be drafted.
For now, remember these are proposals for a government review over the Summer and a week is a long time in politics. Especially when France, Germany and other states are grappling with their own possible reforms.