The Taylor Review – looking beyond ‘dependent contractors’

Amidst ongoing concerns around employment practices and employee status, the Taylor Review of Modern Working Practices has been released to great press interest. We take a closer look at the Review’s recommendations and consider the implications these would have if implemented. 

17 July 2017

Amidst ongoing concerns around employment practices and employee status, the Taylor Review of Modern Working Practices (the Review) has been released to great press interest. We take a closer look at some of the Review’s recommendations and consider the implications these would have if implemented.

Employment status
Despite the Review taking a deliberately wide approach to its remit, and considering many different factors which influence the lives of those working in the UK, one of the most anticipated parts of the Review was its recommendations to regularise employment status. 

There is currently confusion between the markers for ‘self-employed contractors’, ‘workers’, and ‘employees’. Why does this matter? Because these different categories are entitled to different levels of statutory rights, and you need to be a ‘worker’ or ‘employee’ to benefit from national minimum wage and the right to paid holidays. ‘Employees’ are actually a subset of the wider class of ‘worker’: all employees are workers, but not all workers are employees. This has resulted in a complicated system where someone can be defined by what they are not. As a result, the Review proposes to retain the ‘worker’ term where it is used in the legislation, but for this to now encompass ‘employees’ and ‘dependent contractors’ (essentially giving a name to the subset of workers who do not meet the test to be full employees). 

As shown by the recent Deliveroo and Pimlico Plumbers decisions, employment status can be difficult to determine, and just because a contract states that it deals with self-employed contractors, does not mean that an employment judge could not find that the agreement actually results in a worker relationship. Different factors are taken into account when analysing the relationship, but the key markers that someone is not self-employed have been found to be mutuality of obligation, the degree of control between the parties, and whether the individual has to perform the work personally. 

The Review recommends that more emphasis be given to the ‘control’ part of that test for a dependent contractor, and less on the individual’s ability to send a substitute, rather than work personally (a right which is often theoretically present in order to tick the ‘self-employed’ box, but less used in practice). Also recommended is an online tool to guide individuals as to their employment status, similar to the tool which is already available for tax purposes. 

To add a further layer of complexity, status for tax purposes may be different to status for the determination of statutory rights, with there being only two categories: either employed or self-employed. Some submissions to the Review suggested that this two-tier approach should also be adopted for employment rights purposes, but this was rejected. Instead, the Review recommends that all ‘dependent contractors’, as well as all ‘employees’, be classed as employed and subject to PAYE.

Pay rates for dependant contractors
There are further provisions which are particularly relevant for gig economy participants, which relate to national minimum wage. The Review suggests the introduction of ‘piece rate’ legislation which would mean that employers would have to prove that an average dependent contractor in their business, working averagely hard, would earn at least 20% more than the national minimum wage. An individual who makes the choice to work in a period where there is low demand, knowing that average pay would be reduced for this period, would not then be able to make a pay claim against the employer. This would avoid the situation where someone logs on at a time when they know no work is available and then tries to claim that their employer should have paid them for that period.

Holiday pay
Two different proposals have been made in relation to holiday pay. Firstly, that the ‘pay reference period’ used to calculate the rate at which holidays should be paid be extended from 12 weeks to 52 weeks (to cover seasonal fluctuations); and secondly, that dependent contractors can be paid rolled-up holiday pay, on the basis of accruing a 12.07% hourly premium. 

The Review specifies that this second proposal would be subject to ‘safeguards’ to prevent someone working 52 weeks a year without taking a holiday, but it is unclear how this would work in practice, and how it would fit together with the obligations on employers under the Working Time Regulations to ensure their workers have the opportunity to take paid annual leave (and not just be compensated for not taking it). 

Zero hours contracts
The Review has much to say in relation to zero hours contracts. It points out that only 2.8% of British people in employment are on such contracts, and that in fact 68% of zero-hours workers do not want more hours. Accordingly, calls to ban zero hours contracts have been rejected by the Review, whose authors feel that the contracts have their place. The Review instead recommends a right for zero-hours workers to request a contract which reflects their actual hours worked, once they have been working for 12 months. It remains to be seen how effective this would be in practice as, according to the recommendations in the Review, employers would not be obliged to accept the request.

Potentially of more use to zero-hours workers looking to increase their guaranteed hours (and of wider relevance too) is the suggestion that there be an increased level of national minimum wage applicable for overtime hours worked above the hours fixed in a contract, classed as a ‘flexibility premium’. Similar systems already operate in America and Australia, and would seem likely to reduce inappropriate use of zero hours contracts where the worker is in fact working regular hours, as employers will be incentivised to ensure the paperwork reflects reality in order to avoid increasing salaries. 

What next?
The proposals made in the Review have the potential to increase burdens on employers, and would seem to generally tend towards increased pay for workers. The retention of zero-hours contracts where these are needed for true flexibility will also be welcomed. However despite the discussion they have generated, the above proposals (in addition to the many other recommendations made in different areas such as worker representation and rules around national income contributions over the course of the Review’s 115 pages) are meaningless unless the Government decides to implement them and takes action to do so. These are hot-topic issues which have been under discussion for several years, and so some legislative change seems certain. However, it remains to be seen what the Government will take forward in the coming months