Default ‘worker’ status suggested by committee of MPs
In a new report the Work and Pensions Committee has said the Government must close the loopholes that allow ‘bogus’ self-employment practices. These practices are potentially creating an extra burden on the welfare state while simultaneously reducing the tax contributions that sustain it, the Committee argues. The Committee heard from ‘gig economy’ companies such as Uber, Amazon, Hermes and Deliveroo, and from drivers who work with them. The evidence taken painted ‘starkly contrasting’ pictures of the effect and impact of ‘self-employment’ by these companies. The inquiry had to be curtailed because of the election.
On tax, the Committee said:
The apparent freedom companies enjoy to deny workers the rights that come with ‘employee’ or ‘worker’ status fails to protect workers from exploitation and poor working conditions. It also leads to substantial tax losses to the public purse, and potentially increases the strain on the welfare state.
Low levels of retirement saving amongst the self-employed risk storing up ‘grave’ problems of potential hardship and reliance on the welfare state in later life. While auto-enrolment for employees has been a great success, current structures are not encouraging sufficient pension saving by the self-employed. The idea of using an opt-out system on tax returns to encourage greater contribution to pensions is an interesting one that merits further consideration.
Where there are tax advantages to both workers and businesses in opting for a self-employed contractor arrangement, there is little to stand in the way.
In depth on tax:
The report makes some obvious comments such as that self-employed people are not covered by employment law. Those who are defined as ‘workers’ have some employment rights, which include the right to the national living wage or national minimum wage, protection against unlawful deduction from wages, minimum levels of paid holiday and rest breaks, protection against discrimination, and the right not to be treated less favourably if they work part-time. They may be entitled to benefits such as SSP and Statutory parental pay in some circumstances. In contrast, employees have a full complement of employment rights. This includes everything that workers have, plus SSP, parental pay, notice periods if their employment is ending, protection against unfair dismissal, the right to request flexible working, time off for emergencies and Statutory Redundancy Pay.
For HMRC purposes there are only two statuses: employed or self-employed. ‘Workers’ can fall into either tax category depending on the nature of their employment. This does not affect their employment rights. For example, someone who has the employment law status ‘worker’ but is self-employed for tax purposes would still be entitled to ‘worker’ rights. Conversely, someone who is designated ‘employed’ for tax purposes (for example, under IR35 legislation) but does not have an employment contract would not automatically be entitled to employee or worker rights.
The blurring of employment status is not confined to the lower-end of the pay-scale. There are also numerous examples of highly-paid consultants working as self-employed with working arrangements very similar to those of the employees they work alongside. This provides substantial tax benefits to both workers and organisations, to the detriment of the public purse, the report says. Yet in all cases, companies rely on these individuals attending work regularly and carrying out tasks that are often agreed and planned in advance: much like other companies might rely on employees.
The report says it is incumbent on government to close loopholes that incentivise exploitative behaviour by a minority of companies, not least because bogus self-employment passes the burden of safety net support to the welfare state at the same time as reducing tax revenue.
Conversely, the report says where there are tax advantages to both workers and businesses in opting for a self-employed contractor arrangement, there is little to stand in the way. It is clear that current ways of categorising workers are creaking under the weight of the changing economy.
The report said: “An assumption of the employment status of ‘worker’ by default, rather than ‘self-employed’ by default, would protect both those workers and the public purse and would put the onus on companies to provide basic safety net standards of rights and benefits to their workers. This assumption would entitle workers to employment rights commensurate with ‘worker’ status. As there is no ‘worker’ status in tax law, tax status would be unaffected. Companies wishing to deviate from this model would need to present the case for doing so, in effect placing the burden of proof of employment status on the company.”
By Hamant Verma