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Gig economy worker bill: How it will hit your business

Clare Gilroy-Scott

A draft bill calling for clarification of the definitions of employment status, targeted at gig economy companies, could have significant implications for self-employed construction workers.

So-called ‘gig economy working’ has been under much scrutiny recently.

Different types of models in diverse industries and sectors have been tested by the courts to clarify employment status for workers who carry out their work on a short-term, job-by-job basis.

It is estimated that 1.6m people who are treated as self-employed work for gig economy companies. In 2015, the Association of Independent Professionals and the Self Employed estimated that there were 800,000 self-employed workers in the UK construction sector.

Criticisms surround the current framework of gig economy working, with many claiming it allows companies to exploit loopholes to withhold employment rights and underpay workers.

There is a push for an industry-wide review of working structures to take place, and the work and pensions select committee alongside the business, energy and industrial strategy committee have jointly prepared draft legislation to address these issues.

The proposals

Last month a draft bill was published which calls for clarification of definitions of employment status, in order to keep up with modern working practices.

The main proposal is a ‘worker by default’ status, which would place the burden on employer companies to prove that their workers are self-employed, as opposed to the current system where the burden lies with workers to go to court to clarify their employment status.

“The proposed legislation aims to level the playing field by allowing workers to hold firms to account and to distinguish between workers and the genuinely self-employed”

Additionally, a wage premium is proposed for workers with non-contracted hours. The aim is to encourage employers to offer more stable hours.

Financial penalties are proposed for companies who falsely classify their workers as self-employed when the circumstances prove otherwise, with proposals to name and shame where the breach was non-accidental.

The proposed legislation aims to level the playing field by allowing workers to hold firms to account, and to distinguish between ‘workers’ (where employers exert control and supervision), and the genuinely self-employed.

Implications for construction

The use of subcontractors and casual labour is a popular method of engaging workers in the construction industry and many work on a zero-hours basis. With less certainty or consistent work opportunities throughout the year for the self-employed, some subcontractors could be left without sufficient employment rights, freedoms and protections.

Trade unions are keen for workers to have clearer and more enforceable employment rights, which these proposals would bring.

Given that many in construction engage and pay subcontractors under the Construction Industry Scheme, construction businesses will have to ensure the employment status of individual contractors is correct, as this will determine the tax treatment of that individual under CIS. Note that CIS covers self-employed individuals only, and not a contractor’s employees whose tax is deducted through the PAYE system.

“Trade unions are keen for workers to have clearer and more enforceable employment rights, which these proposals would bring”

Correctly identifying an individual’s status is not straightforward, with courts taking a case-by-case approach. Courts have found that many ‘self-employed’ labourers are in fact ‘workers’ with rights to holiday pay and national minimum wage, often where it is difficult to establish that a self-employed worker is supervised or controlled by the contracting business. Supervision and control are more indicative of an employer-employee relationship.

If a worker is a skilled tradesman with experience, it is unlikely they will need a controlling supervisor and they are therefore more likely to be self-employed. However, this will largely depend on the circumstances.

What can you do now?

It is recommended that construction firms review the terms of the subcontractors and workers they engage and pay to ensure they comply with all obligations under the CIS, in terms of tax deductions.

The firm will need to be able to show that they have considered whether an individual should be treated as an employee to whom PAYE applies, or as a genuinely self-employed worker. HMRC has a useful tool to test self-employment status.

If the subcontractor is not self-employed then they will have employment rights applicable to ‘workers’ such as holiday pay and national minimum wage.

In terms of the proposals, the government is due to consider the draft bill and provide a response in due course.

Time will tell if these will be accepted, and if implemented, whether they will strike the right balance in clarifying the different employment statuses, maintaining flexibility for both workers and businesses, while granting sufficient statutory protection in terms of basic employment rights.

Clare Gilroy-Scott is a partner and Emily Kearsey is a solicitor in the London employment law team at Goodman Derrick

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