18th December 2018 may we go down as a memorable date in the evolution of the UK’s labour market if the Government (via BEIS) manages to pull off the long list of announcements contained in the “Good Work Plan”. The plan documents the action Government intends to take following recommendations made in the Matthew Taylor review and various consultations undertaken earlier in the year. This is essentially the framework for changing (improving?) the governance of our labour market. The changes are predominantly driven by a recognition that the way in which the UK labour market operates is evolving to embrace more flexible and varied ways of working.
The document itself is an easy read and anyone involved in the flexible labour market should ensure they read and digest the contents to help inform the changes that are coming to their business.
Read the document here
Whilst there are many changes coming (with most of the timescales yet to be defined) I have summarised below what I believe are the most significant changes which will impact the professional contractor market:
It is interesting to read that the Government intends to enshrine employment status into legislation. The driver for this is an attempt to clarify the boundaries between employment, self-employment and worker. The challenge here is whether the legislative version of the employment status tests will reflect the current framework or whether Government will use this as an opportunity to shift the goal posts and change the way status is assessed. The plan alludes to a change, referencing a potential down grading of personal service (right of substitution test) and an upgrading of control. This seems sensible and does indicate that the general employment status tests are likely to remain, albeit a reordering of importance to avoid the potential for contrived arrangements. Timing is crucial here and you would hope that BEIS is working closely with HMRC / HMT on this issue.
The plan also makes reference to improving online guidance and tools to help people understand their employment status. This is a positive development, however, should be cautioned in its remit. The use of various tools to determine employment status for tax purposes (e.g. the CEST tool launched in April 2017) has not been successful in providing anything more than guidance – reliance on the output of a questionnaire when assessing status is a dangerous approach to take and is open to abuse.
As well as codifying the test for employment status and improving guidance the Government also acknowledge that an alignment of employment status in terms of employment rights and tax is the “right ambition”. The terminology here indicates that this is a challenging thing to achieve (for example there are 3 statuses for employment rights but only two for tax) and is likely to be on a longer term road map.
Protecting agency workers
Many professional contractors source their contracts via recruitment businesses who play an important role in setting contract rates, explaining how take home pay will be determined and the rights associated. It is therefore unsurprising that a tightening of compliance requirements and enforcement activity is referenced in the plan. The most immediate change will be the bringing forward of legislation to repeal the Swedish Derogation as it has been abused by some businesses to withhold agency workers’ equal pay rights.
One of the more welcome changes announced in the plan is the roll out of the requirement for employment businesses to issue a key facts page for agency workers. This is in an attempt to address the lack of transparency / understanding that some agency workers experience around contract rate versus pay rate, who will be employing and paying them and what their actual take home pay will be after all deductions. The Government are also hoping that employment businesses will carry out appropriate due diligence on payroll providers in their supply chains. Despite that additional administration, I think this is a positive move for both the worker, the agency and other intermediaries (such as umbrella companies) who will play an important role in ensuring the key facts document achieves the Government’s aims around transparency and compliance.
It is good news that Government will progress with its plans to regulate umbrella companies. Recent changes to the off-payroll rules in the public sector has resulted in an explosion of new payroll intermediaries, many masquerading as “compliant” umbrella companies but who don’t meet the required standards of the industry’s self-regulation body, the FCSA. In addition, the recent enforcement activity by HMRC in response to tax avoidance via loan schemes has resulted in confusion in the market about what an umbrella company is and what good looks like in terms of compliance. It is therefore encouraging that the Government via the Employment Agencies Standards Inspectorate are now looking to ramp up enforcement action against umbrella companies and other payment intermediaries. The focus of the EASI will be where umbrella employees have not received adequate pay; it is therefore comforting that the plan also references the role that HMRC needs to continue to play in ensuring the correct amounts of tax / NIC are paid.
In summary, I think most of the changes announced in the Good Work Plan are a positive step in the right direction for all involved in the UK flexible labour market. I don’t expect businesses who are operating in the spirit of the current rules to face any significant disruption, whereas those businesses playing outside of the current rules are likely to have to come into line or face the consequences as the governance framework continues to be tightened.