Self-employment reform: what the government's new consultation means for businesses that engage contractors

On 14 October 2026, the Government published its consultation "Make Work Pay: employment status reform and protections for the self-employed". 

In short, it proposes to: (i) place less emphasis on personal service in the “limb (b) worker” test by giving "control" a bigger role, which would weaken the effect of broad substitution clauses; (ii) create a "presumption of worker status" at tribunal, moving the burden of proof onto the engager; (iii) make repeated misclassification lead to higher penalties and widen the Fair Work Agency's role in enforcing status; and (iv) strengthen protections for the genuinely self-employed, including a new right to a written statement. 

Notably, the consultation deals only with the employment status framework for employment rights, and proposes no changes to the parallel framework for tax. The co-existence of the frameworks continues despite the 2017 Taylor Review, which the consultation itself cites on substitution clauses. Taylor recommended renewed efforts to align the employment and tax status frameworks so that the differences between them are “reduced to an absolute minimum”. The then government took that recommendation forward for consultation in 2018 and, in its Good Work Plan, committed to bringing forward detailed proposals for alignment. However, these proposals remain elusive.

Why substitution clauses could matter less?

At present, an individual is a “limb (b) worker” if they: 

• work under a contract, 
• provide personal service, and 
• are not carrying on a business or profession for which the other party is a client or customer. 

Personal service is essential to both worker and employee status. A genuine, unfettered right of substitution can therefore be the deciding factor of a worker claim, even where the business controls most aspects of how the work is done. A substitution clause that reflects how the relationship really works can do this even if it is rarely or never used. 

The Government's preferred option is to change stage (ii) so that a tribunal asks whether the individual personally provides services and/or is subject to a significant level of direction or control by the engager. Only if neither is present could the individual be found self-employed at that stage. The stated aim is that a valid right of substitution should no longer outweigh all the other factors pointing towards worker status.

Alternative options include legislating that a right of substitution is not the sole or overriding factor at stage (ii) or renaming the “limb (b) worker” category to give individuals and employers a common reference point.

For employers, the practical consequence of this reform is that a well-drafted substitution clause would be much less protective where the business sets pricing, monitors performance and dictates working times. 

Shifting the burden: a presumption of worker status

At present, the individual must prove that they are entitled to worker rights. The Government proposes to reverse this, so that for any right that flows from “limb (b) status” (such as holiday pay and workplace pension), the individual is presumed to be a worker unless the engager shows otherwise. This is modelled on the existing presumption in section 28(1) of the National Minimum Wage Act 1998. The presumption would apply only to the question of status. It would not apply to whether the rights were actually provided, and it would not apply to employee status. 

Alongside this, the Government proposes that repeated failures to recognise employment status should count as an aggravating factor, so that higher penalties can be imposed where a tribunal has already found that others engaged by the same business are workers or employees. The Fair Work Agency's civil proceedings power could also be used to bring status claims for individuals where bogus self-employment is suspected. 

The Government expects little impact on genuine self-employment, pointing to tribunals’ existing strike-out powers. In practice, however, engagers will need evidence ready to rebut the presumption, and a single adverse finding could create exposure across the whole workforce. Clear records of how engagements actually operate will be key.

Strengthening protections for the self-employed

The Government is also considering targeted rights for the self-employed. Rather than defining self-employment, it would extend the meaning of "worker" for specific rights, as it already does for whistleblowing. Proposals include a right to a written statement of key terms (such as scope of work, expected duration, payment and termination). An existing written contract containing this information would suffice, and qualifying thresholds based on the length or value of the engagement are being considered.

The consultation also covers extending blacklisting and health and safety protections, including detriment protection under section 44(1A) of the Employment Rights Act 1996, and allowing non-employee members of any trade union to act as safety representatives.

Next steps

These are only consultation proposals, but they clearly signal the Government’s direction of travel. Businesses with significant contractor or gig-based workforces should start reviewing their substitution clauses, the level of control they exercise in practice and their contractor documentation now.

If you would like to discuss how these proposals might affect your business, please speak to your usual Macfarlanes contact.