The low-down on the 'gig economy'

The gig economy refers to the trend of workers using online platforms to source small, sometimes on-demand, pieces of work which they are paid for on a self-employed basis. Those in the gig economy include cleaners for Hassle, errand-runners for TaskRabbit and drivers for Uber.

The gig economy is growing fast, yet is controversial. Some champion its progressiveness and say it creates opportunities for individuals who might otherwise struggle to find work. Others point to vulnerability of the workers and say that behind the innovative technology and new language of ‘tasks’ and ‘rides’ etc., an old problem lies – the workers are not genuinely self-employed and are being forced down this route by businesses looking to minimise their costs and obligations.

This puts this topic squarely within LITRG’s remit and the past few weeks have seen the release of two new reports on the gig economy, the release of relevant manifesto pledges, as well as an interesting announcement by Uber about their drivers and sick pay. Here we give you a round-up - and clarify a potential point of confusion about when gig economy workers might be entitled to Statutory Sick Pay.

Work and Pensions Committee 

In their gig economy report, the House of Commons Work and Pensions Committee said that the Government must close the loopholes that are currently allowing "bogus" self-employment practices.

As well as suggesting there should be a default ‘worker’ status and reviewing the Minimum Income Floor in Universal Credit , both of which were the subject of LITRG press releases, the Committee made various other recommendations, including that government should set out a roadmap for equalising employee and self-employed National Insurance Contributions (NICs).

By this we assume that the Committee mean not only equalising the level of NICs paid personally by the self-employed but also equalising the position at engager level, given that avoidance of Employer NIC is one of the main reasons that self-employment is often foisted upon workers. While removing this incentive will no doubt help address the problem of bogus self-employment in time, we think the Government must consider the wider context here: unless other action is taken to level the playing field, engagers will just turn to other ‘flexible’ working options to help protect their profitability, such as using zero hours contracts or agency workers. Both options offer engagers other ways of saving money so, like a cork in water, the problem of workers being exploited by engagers for their own ends is just likely to bob up elsewhere.

We share further thoughts around this and the changes that are needed to the system to bring about sustainable protection for workers, in our guest contribution to the TUC’s ToUChstone blog.

RSA report – Good Gigs

Good Gigs – A fairer future for the UK’s gig economy, by the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) looks at what the gig economy is like for workers and how platforms can become a catalyst for fair, fulfilling work in the modern labour market.

The report (which LITRG were pleased to be able to contribute to, particularly the content around employment status and the implications for tax and welfare) notes that there are now an estimated 1.1 million people in Britain’s gig economy, which is nearly as many workers as in the National Health Service (NHS) England. They suggest that there is a balance to be found: proponents of platforms must realise that innovation cannot be enjoyed at the expense of workers, but equally, holding platforms back will not serve anyone’s best interests given their merits (i.e. convenience, flexibility, and resource efficiency).

While their recommendations are more holistic than those from the Work and Pensions Committee nevertheless they list a number of specific, short-term issues that need to be addressed. These include recommendations that:

• government and the gig economy industry collaborate and create a good work charter which sets out how gig workers can have fulfilling working lives
• the government publish an official guide to aid workers and businesses in identifying different employment rights and related tax obligations; and
• the government should suspend tribunal fees for workers challenging their employment status.  

Interestingly - in line with the recommendation made by the Work and Pensions Committee - they suggest the Government reverse the burden of proof, so that the onus is on companies to prove that their workers are not ‘workers’ or employees.

These are recommendations that LITRG would largely support. Indeed, LITRG made a submission to the Department for Business, Energy & Industrial Strategy (BEIS) review into ‘the future world or work and the rights of workers’ last year highlighting the inadequacy of GOV.UK guidance for gig economy workers, questioning the effectiveness of the enforcement regime for such workers in terms of rights and including many recommendations in a similar vein to the RSA’s (the BEIS inquiry is yet to report).

Both of the Work and Pension Committee’s and the RSA’s reports come ahead of the government’s Matthew Taylor review of modern working practices - which is expected to report in the summer.

Manifestos

The Conservative, Labour and Liberal Democrat manifestos all contain pledges around the gig economy.

In the Conservative party manifesto, Theresa May writes that the gig economy ‘brings considerable advantages to millions of people but we should not ignore the challenges this kind of employment creates. These workers are officially classed as self-employed and therefore have fewer pension entitlements, reduced access to benefits, and no qualification for sick pay and holiday pay. Yet the nature of their work is different from the traditional self-employed worker who might be a sole trader, a freelancer or running their own business. We will make sure that people working in the ‘gig’ economy are properly protected. Last October, the government commissioned Matthew Taylor, the chief executive of the Royal Society of Arts, to review the changing labour market. We await his final report but a new Conservative government will act to ensure that the interests of employees on traditional contracts, the self-employed and those people working in the ‘gig’ economy are all properly protected’.

While in the Labour party manifesto, while he does not actually use the phrase ‘gig economy’, Jeremy Corbyn goes into a bit more detail on changes he would make to employment law, with plans for tough new measures to ‘clamp down’ on what is described as ‘bogus self-employment’ by (inter alia):

• Shifting the burden of proof, so that the law assumes a worker is an employee unless the employer can prove otherwise.
• Imposing punitive fines on employers not meeting their responsibilities, helping to deter others from doing the same.
• Involving trade unions in enforcement, e.g. by giving them a seat on the executive board of the new Ministry of Labour.
• Giving the Ministry of Labour the resources to enforce all workers’ rights.

They would also extend the rights of employees to all workers, including shared parental pay and set up a dedicated commission to modernise the law around employment status..

The Lib Dem manifesto includes a promise to give everyone a decent chance of earning a living and move towards a more productive economy. Of relevance to those who work in the gig economy, Tim Farron says they will:

• Encourage the creation and widespread adoption of a ‘good employer’ kitemark
• Modernise employment rights to make them fit for the age of the ‘gig’ economy, looking to build on the forthcoming Taylor report.
• Strengthen enforcement of employment rights, including by bringing together relevant enforcement agencies and scrapping employment tribunal fees.
• Improve the quality of vocational education, including skills for entrepreneurship and self-employment.

While the focus of all the manifestos is on employment rights, it is surely inevitable that - given the risks to the tax take from the rise of non-traditional employment practices such as the gig economy, identified by the Treasury and highlighted by the Chancellor in the Budget - whatever the complexion of the government post-election, we will see further action to reduce the tax incentives to businesses (and other bodies) of providing work through ‘off payroll’ routes such as the gig economy.

Uber sick pay

A recent announcement on the Uber website explains that Uber are now offering drivers access to a range of benefits and protections. For example, they will be covered for Jury service up to £2,000 and £300 per week for up to 52 weeks if an accident takes place during a trip or while logged into the app.

They will also be eligible for sickness and injury cover of up to £2,000 if unable to drive for two weeks or more - important because currently they have no recourse to Statutory Sick Pay. To access the cover drivers will have to pay a £2 weekly premium (the package is actually worth £8 a week - Uber are paying the difference).

Some commentary that we have seen seems to suggest that if Uber drivers are classified as ‘workers’ under employment law (Uber are due to challenge the judgement that their drives are ‘workers’ later this year) then they will become entitled to Statutory Sick Pay.

But unfortunately (as always!) the matter is more complex than that. Even if Uber drivers are 'workers' under employment law, they will not automatically become entitled to Statutory Sick Pay from Uber. This is because currently, most Uber drivers are treated as self-employed for tax purposes and so are paid gross. Not being paid via PAYE means that there is no secondary contributor (someone who is liable to pay Class 1 secondary National Insurance Contributions). Secondary contributors are responsible for administering and part-financing statutory payments under the Social Security Contributions and Benefits Act 1992.  If there is no secondary contributor, then it follows that the worker cannot be entitled to Statutory Sick Pay or any other statutory payments for that matter, e.g. Statutory Maternity Pay etc.

Therefore, entitlement to Statutory Sick Pay would require not only a change in the worker’s employment law status but a change in the worker’s tax status as well. Interestingly, Matthew Taylor’s terms of reference do not expressly cover tax. However, as we can see from the nuance above regarding Statutory Sick Pay, there is much overlap between employment rights and the tax system. As a gig economy worker’s tax status also impacts their overall position in terms of pay, rights, security and so on, the workers position needs to be considered in the round.   

In our submission to the Matthew Taylor review , we therefore call for a thorough review of the tax position of such workers as soon as possible. At the heart of such a review will of course be the thorny issue of whether the workers are being treated as self-employed correctly. However further questions then flow from this: If gig economy workers are self-employed for tax purposes, does more need to be done to help them to understand the system? And what are the implications for the tax base? (You can find some of our high level thoughts on this in our recent submission to the Commons Treasury Select Committee on the treat to the UK tax base from changing patterns of working.)

If they are not self-employed, then in the era of PAYE avoidance, would they really be any better off being payrolled? What are the knock on effect on tax credits/Universal Credit of a change in tax status? Do we need to find another way of dealing with those in non-standard roles altogether? Getting to the bottom of all of this will not be an easy task, however it will be important to do so to in order to be able to truly move this topic on. As always, LITRG stand by ready and willing to assist and contribute to the debate.

Blog by Meredith McCammond, a technical officer for the Low Incomes Tax Reform Group (LITRG)

Notes for editors

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.