New employment status guidance from government

In 2018, the government launched a consultation on whether the tests for determining status for employment and tax purposes should be aligned, to create a streamlined system for both the business and the individual. But, in a response released in July 2022, it has been confirmed that this will not come into effect. Instead, current tests will remain in place.

The government recognised that an aligned system may, in the long-term, improve clarity and make the tests easier to complete. However, it believed that employers already have enough on their plates without adding further legislative reform. It highlighted that changes to status tests would create cost and uncertainty for businesses in the short-term, especially whilst they try to focus on recovering from the pandemic and the impact of Brexit.

In its consultation response, the government further outlined that the recent Supreme Court decision of Uber BV  v Aslam and others provided sufficient information for employers to copy, so wanted to allow an appropriate time for HR teams to digest the impact of the decision and make necessary changes, before considering further intervention.

However, to make the process of determining status easier for both organisations and individual workers, new guidance has been released. It’s hoped this will help demystify status-related case law and provide a more accessible platform for people to work out their own status. The technical guidance aims to offer practical advice and examples to allow individuals to do so.

The consultation separately considered whether ‘worker’ status should be removed completely, meaning people would only fall into the categories of ‘employee’ or ‘self-employed.’ It would also mean the majority of people who currently have worker status would become entitled to rights as an employee, unless they had enough flexibility in their normal activities to be classed as genuinely self-employed. However, this proposal was also rejected.

Status is, undoubtedly, one of the more difficult areas of employment law which organisations have to contend with. Due to the complexities involved with determining status, employers will be pleased to receive new guidance, which pulls together case law and other resources into one main document.

This being said,  it’s important to remember that the ramifications when status is applied incorrectly can be significant. In essence, it could lead to an employee missing out on key statutory entitlements, such as sick pay, holiday pay and redundancy pay. Where claims are successful, employers may be faced with large compensation bills to cover backpay for these missing rights. In most cases, underpayments can only be paid for up to 2 years in arrears. But, case law has confirmed that, where status is wrong, and an employee misses out on statutory payments as a result, employers may be required to backpay for the duration of the time the person worked for them under the wrong employment status. In cases where an employee has worked for 5, 10, 15 or even 20 years, the expense to the business can be immense.

Therefore, it is beneficial to ensure the correct status is applied from the commencement of employment, and regularly reviewed throughout their working period, to avoid such claims and costs arising.

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