Employment status – status quo

28 July 2022

The thorny question of whether someone is a worker, an employee or self-employed (for employment rights purposes) and an employee or self-employed (for tax purposes) continues to generate high volumes of litigation. The Government began a consultation in 2018 asking, amongst other things, whether legislation should define these categories more precisely, and whether the tax and employment rules should be harmonised.

After four years of deliberation, the Government has now concluded that no changes are necessary. As regards the proposal to introduce a statutory test for employment status, the Government has decided that "the benefits of creating a new framework for employment status are currently outweighed by the risk associated with legislative reform".

The Government’s view is that the current approach strikes the “right balance”, and allows “flexibility for both employer and individuals”. This flexibility seems to come at the cost of certainty, especially in the context of the numerous cases that have reached the Supreme Court and Court of Appeal on the matter in recent years.

This will be unwelcome news for employers using different labour models, not solely in the gig economy, where accurate categorisation of individuals materially affects the tax, employment and risk profiles of each engagement. In an effort to give some assistance to businesses, the Government has issued some additional guidance, which may be of some help in this particularly difficult area.

This guidance will make it easier for individuals to work out their own status while ensuring that the employment status system remains flexible and continues to adapt to modern working practices.