Employing workers in the gig economy? Take note of shifting dynamics in employment and tax law

The Autumn of the new normal for employers

We have recently posted in our EmploymentLinks blog on employment law developments in the UK that we are likely to see in the final few months of 2020. Covering Brexit, tax changes for the self-employed, board diversity, employment status in the gig economy, flexible working and the workplace of the future – it’s clear from our review that there is plenty for employers to think about.

Gig economy worker status

For the tech sector, the upcoming Uber decision is of interest. The Supreme Court will give a final ruling on whether Uber’s drivers are workers or genuinely self-employed. The decision should be out before year end but the key question is - will the case resolve the law relating to gig economy worker status? The short answer to that is probably not. This decision, like so many others, on employment status is so fact sensitive that the common law is unlikely to bring the clarity that is needed.

The underlying legal principles were developed long before the gig economy emerged so the courts have been left to do their best to fit the proverbial square peg into a round hole. The crux of the problem is that the case law requires a consideration of all relevant factors in the relationship between individual and “employer”, with no clear formula allowing businesses to identify whether an individual is an employee, a worker or self-employed contractor. What is needed is a clear set of definitions for each status with readily identifiable characteristics.

How will the issue of gig economy worker status be resolved? What we need is legislation in this area. However, this seems unlikely to happen any time soon - the UK government have not progressed the issue, despite promising to do so at the end of 2018. With the current embroilment in Covid-19 recovery and Brexit sapping resources, there doesn't appear to be any focus on the issue in Westminster at present.

Tax changes driving changes in the labour market

However, what is interesting now is the impact that recent tax changes (also discussed in our EmploymentLinks blog ) may be having on the self-employed. The second quarter of 2020 saw record numbers of individuals switching away from self-employment to employed status. This could be attributed to individuals seeking greater security in uncertain times. Alternatively, it could be explained by the much reviled and soon-to-be-implemented IR35 reforms, which for many make self-employment an unattractive option.

The Chancellor has also put the potential to equalize National Insurance contributions back on the table (Philip Hammond famously u-turned on an increase in self-employed NICs in 2017). Aside from the fallout from shifting the status quo, it could be argued that there is really no compelling rationale for NI contributions to be treated differently between a self-employed and an employed worker. Given the current pressures on UK government fiscal resources, it seems likely this loophole could be closed.

It may therefore be that fiscal incentives, rather than legislation, will drive individuals engaged in the gig economy away from self-employment and towards full employment in the near future. Employers of those workers will need to be ready to accommodate the shift.