11.The “safety net” function of the welfare state offers means-tested benefits for those in need. Employers must provide basic minimums such as the National Living Wage and employees (and to a lesser extent, “workers”—see Box 2) have employment rights to protect them at work. These rights protect workers from hardship and help reduce state welfare costs. The self-employed have no such employment rights, and those paying their wages have no such obligations towards them.
Box 2: Employment status
Self-employed people are not covered by employment law. They have very few rights at work, limited to protection for health and safety purposes, and some protection against discrimination.
Workers have some employment rights. These 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 Statutory Sick Pay and Statutory parental pay in some circumstances.
Employees have a full complement of employment rights. This includes everything that workers have, plus Statutory Sick Pay, 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.
12.The gig economy companies we spoke to emphasised that flexibility was both an important feature of their business models and valued by people that work for them. Deliveroo, which uses couriers to deliver restaurant food, told us that the flexible work it offers is contingent on workers being self-employed. Without self-employment, Deliveroo claimed, flexibility would be much reduced. We heard similar statements from Uber, Hermes and Amazon. The idea that flexibility and an employment contract are mutually exclusive was not confined to company representatives. Worker representatives put forward by Uber, Deliveroo and Hermes said they feared their flexible employment would be taken away if the companies moved to employee or worker models.
13.We also heard from many contractors for whom the reality of “gig” and self-employment did not live up to the flexible ideal (see Box 3). Rather, we heard of low pay, inflexibility in working times, long hours, instability, and difficulties in taking time off (such as for a holiday or for sick leave).
Box 3: Experiences of self-employed workers
14.The different entitlements of employees, workers and the self-employed are clear. We heard much to indicate, however, that the boundaries between the categories are not. A wide range of practices that seemed to blur the line between “employment” and “self-employment” were brought to our attention. These included:
a)Aspects of control by the contracting company over working patterns: for example, being assigned shifts or rounds, with the risk of work being permanently withdrawn or charges levied if workers failed to fulfil them;
b)Workers who carried out regular working hours over substantial periods of time, up to periods of years for one company;
c)An inability on the part of workers to negotiate or set pay;
d)Workers experiencing difficulties in having “substitute” workers accepted by the contracting company, if they were unable to work their scheduled shifts; and
e)Guidance given to salaried staff on how to avoid referring to their workers in terms that might imply an employer-employee relationship, in light of their employment model (see Figure 1).
Figure 1: Extract from Deliveroo language guide for staff
15.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. 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.
16.Questions of employment status are often only finally resolved in court, with reference to swathes of case law. In a number of recent court cases self-employed contractors have successfully challenged their self-employed status (see Box 4). Yet the outcomes of these cases generally only apply to the particular company and group of workers under consideration: what applies to one company does not necessarily have any implications for those working for other organisations with, potentially, very similar business models. There is, therefore, a substantial burden on workers if they wish to challenge their status: one that those in vulnerable or isolated positions may be very hesitant to bear.
Box 4: Examples of court cases and outcomes
17.This issue is by compounded by clauses in contracts issued to many thousands of gig economy workers which deny them the right to challenge their employment status in court (see Figures 2 and 3). We heard from the companies concerned that these clauses were unlikely to be legally enforceable; but to an average worker with little or no understanding of employment law, the intended deterrent effect is clear.
Figure 2: Extract from Deliveroo contract
Figure 3: Extract from Uber contract
18.We also gained an insight into the processes through which companies demonstrate to the relevant authorities (for example, HMRC) that their workers are self-employed. This hinged on showing that workers are denied anything that might afford them the status of employees (see Figure 4 below). Dan Warne, of Deliveroo, told us that his company did not offer its workers certain benefits because this would jeopardise their self-employed status—and Deliveroo’s existing business model. When pushed, however, Deliveroo, along with Amazon and Uber, conceded that their business models would still be viable if they took on couriers and drivers as employees. They might simply be less profitable. The contracts that we saw from several companies also explained in great detail why workers were not employed, and the benefits that they would not receive. Beyond this there seemed to be little that would constitute a substantive reason or case for taking on workers on a self-employed basis. Flexibility is not the preserve of the self-employed. Indeed, it is a growing feature of work on regular employment contracts.
Figure 4: How HMRC decides employment status
19.Companies relying on self-employed workforces frequently promote the idea that flexible employment is contingent on self-employed status. But this is a fiction. Self-employment is genuinely flexible and rewarding for many, but people on employment contracts can and do work flexibly; flexibility is not the preserve of poorly paid, unstable contractors. Profit, not flexibility, is the motive for using self-employed labour in these cases. Businesses should of course be expected to seek out opportunities and exploit them. 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.
20.Designating workers as self-employed because their contract offers none of the benefits of employment puts cart before horse. It is clear, though, that this logic has taken hold, enabling companies to propagate a myth of self-employment. This myth frequently fails to stand up in court, but individuals face huge risks in challenging their employment status in that way. Conversely, 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.
21.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. 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.
10 Whether those needs are temporary in nature, for example as a result of unemployment, or longer-term, for example as a result of disability.
11 IR35 is tax legislation intended to identify individuals supplying services through an intermediary company as self-employed who should properly be considered employed for tax purposes. The legislation aims to prevent “disguised employment” being used as a means of avoiding tax.
12 (Dan Warne, Lesley Smith, Carole Woodhead and Andrew Byrne)
13 , (Steven Rowe), (Cain Jones), (Graham Baines)
14 See letters and evidence published on the .
15 (Dan Warne)
16 (Dan Warne)
17 (Dan Warne, Lesley Smith, Andrew Byrne)
29 April 2017