- Good Work: The Taylor review of modern working practices has been published.
- Zero-hour contract workers could be paid at a higher rate and be given contractual rights.
- The review calls on the Government to think creatively in exploring ways to improve pension provision for the self-employed.
- To improve conditions for workers in the gig economy, the review calls for the legal definition of worker to be changed to include a ‘dependent contractor’.
IMPROVING CONDITIONS FOR ZERO-HOURS CONTRACT WORKERS
The review concluded that too many employers are still relying on zero-hours contracts (ZHCs) and recommended that:
- A higher rate of the National Minimum Wage (NMW) for hours not guaranteed by the individual’s contract should be considered. The higher rate should be set at a level which incentivises employers to schedule guaranteed hours as far as reasonable within their business. For example, if someone has six hours’ work a week guaranteed, but actually
- works more than this, the six hours would be paid at NMW rate and the rest at new premium rate.
- Individuals working under ZHCs who have been in the post for 12 months should have the right to request a contract that guarantees hours which better reflect the hours worked.
- Companies beyond a certain size should be required to report on how many requests they have received (and number agreed to) from ZHC workers for fixed hours.
IMPROVING PENSION PROVISION FOR THE SELF-EMPLOYED
Self-employed people are less likely than employed people to be saving for their retirement. A 2015 report by the Resolution Foundation found that as little as 27% of self-employed individuals are putting money into a pension, down from 33% only a few years earlier. This is backed up by statistics from the Wealth and Assets Survey which shows that only 23% of self-employed people intend to rely on a personal pension in retirement. A further 23% expect to rely on the State pension, 12% on personal savings and investments and 6% on the proceeds from selling their business.
To address this savings deficit for the self-employed, the review calls on the Government to make the most of opportunities presented by digital platforms and the move to more cashless transactions.
- More effort should be made to present to the self-employed the benefits of saving from an early age.
- To effectively auto-enrol self-employed people into a pension and administer this through the self-assessment process. For instance, when the individual provided HMRC with their self-assessment, as well as providing funds to cover income tax and NICs liability, they could also be expected to provide 4% of income towards a pension unless they choose to opt out.
- To look at creating a more sustainable long-term solution. For instance, through auto-enrolment, those who benefit from the labour of someone they employ have to pay a percentage of the worker’s total remuneration into the worker’s pension. The ‘employer contribution’ acts as an incentive for the employee not to opt-out of the pension scheme. The Government could look to establish a similar principle for the self-employed to save for their retirement, which could generate a step change in the way that self-employed people save for their future.
- To design digital payment software that automatically transfers money directly into a pension pot or Lifetime ISA so that it becomes as much of a norm, as when an employed person has their employee contributions deducted at source.
TAXATION FOR THE SELF-EMPLOYED
The review made a number of recommendations in relation to taxation for the self-employed:
- Increase class 4 NICs for the self-employed, as originally announced in the Spring 2017 Budget but subsequently abandoned by the Government. In return for this, self-employed individuals should receive the same State benefits as employees.
- Move towards digital cashless transactions to eliminate the cash-in-hand economy, and consider making access to certain licences or services conditional on tax registration.
- Link the right to work for individuals who have been granted visas with a payment mechanism. This would go some way to eliminating illegal working.
IMPROVING CONDITIONS FOR WORKERS IN THE GIG ECONOMY
The review also makes a number of recommendations to improve the working conditions of individuals working in the gig economy.
- At present, ‘worker’ status in the Employment Rights Act 1996 covers both employees and a wider group of working people known as ‘limb (b) workers’. As such, all employees are workers, but not all workers are employees. The review proposes a new name – a ‘dependent contractor’ – for the category of people who are eligible for worker rights but who are not employees. This category would take in many of those working in the gig economy – individuals who are not employees, nor genuinely self-employed. Dependent contractors would be entitled to additional protections and there would be stronger incentives for companies to treat them more fairly.
- In defining dependent contractor status, the Government should adapt the relevant legislation to ensure those working in the gig economy are still able to enjoy maximum flexibility whilst also being able to earn the NMW.
- Develop legislation and guidance that adequately sets out the tests that need to be met to establish employee or dependent contractor status. This should retain the best elements of case law and better reflect the reality of modern day casual work in terms of the control exercised by employers over their staff.
- In developing the new ‘dependent contractor’ test, renewed effort should be made to align the employment status framework with the tax status framework to ensure that differences between the two systems are reduced to an absolute minimum.
- Provide maximum clarity on status and rights for all individuals by extending the right to written particulars to all in employment and developing an online tool providing a clear steer on what rights an individual has.
The review is purely advisory and the Government has said it will take time to consider the recommendations before providing a formal response.
However the Conservative manifesto included a commitment to make auto-enrolment available to the self-employed and the Government will certainly consider any measures to achieve that aim. More uncertain is whether it will decide that dependent contractors should be treated as workers for the purposes of auto-enrolment and be automatically enrolled into a workplace pension scheme.
For further information on the issues covered in this Let’s Talk, please contact your usual consultant or contact Julian Rowe +44 (0)1392 356634 email@example.com