For something which is so fundamental, employment status is taking up a lot of column inches. Last month’s Supreme Court Uber decision dealt with one aspect of the Status issue dealing for the first time with a true Gig economy case; the other comes in the form of reforms to IR35 where end users now have to determine the status of those it engages through intermediaries, generally, Personal Services Companies or agencies.
The Uber decision in the UK marks the end of a long road through the Tribunals and Courts, similar litigation is being and has been pursued in other countries. The outcome has been to find that despite the protestations of Uber that there is a close relationship between the drivers and Uber and that they are not genuine independent contractors. In the UK they have been found to be “workers”.
One of the issues that arose in the case was the ability of the Tribunal/Court to look outside the contractual arrangements. The contractual arrangements were complex and to make the arrangements work there was a lot of control. Control is one of the key elements in identifying an employee. The greater the control the less likely someone is to be an independent contractor. Following an earlier Supreme Court decision (Autoclenz) it was argued that Tribunals were only permitted to look outside the terms of the contract, if what had been agreed did not reflect reality. That had led to Tribunals very quickly looking outside of the contractual arrangements. Faced with that argument the Supreme Court held that this was a matter of statutory interpretation and that the Tribunal was always entitled to look at what happened in practice.
The Uber decision is important. It demonstrates that the historic tests for identifying an individual’s status are still effective and can be deployed in relation to new forms of working. Whilst the claim was brought by only a limited number of employees it is likely to have a significant impact on the way in which others are treated.
The issue of status is important, workers have the right to paid holidays, to receive the national minimum wage, to bring whistleblowing claims, and, in many cases they will qualify as jobholders with the right to be auto-enrolled into a pension. Employees must have tax deducted at source and both employer and employee must pay national insurance contributions, failing to make the correct deductions will lead to significant penalties, interest and the need to pay the unpaid tax.
For all those engaging with individuals to provide services it is important that they are correctly identified.
From 6 April businesses working with individuals through intermediaries will face the same, tricky issue. The IR35 rules are changing, placing the onus on those working with a contractor to identify whether they are inside or outside IR35. If they are inside then tax and national insurance contributions must be deducted and paid, alongside the apprenticeship levy.
HMRC have indicated that they will use the first year to educate employers. The assessments must be carried out with reasonable care and the status notified to the individual worker and the next party in the contractual chain. The need to issue an SDS for each new contract entered into and when there is a change in the relationship creates unwanted pitfalls for end-users of contractors.
We can expect that the contracting market will shrink in the foreseeable future, as it did when the changes were made in the public sector some years ago, but there will be a return, perhaps more circumspect that before to the use of contractors.
Clearly status is going to remain an issue both from an employment and tax perspective, particularly as the world of work will continue to evolve around us, with new structures and methods of working.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.
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