What does the Good Work Plan say about Employment Status?

Fri 21 Dec 2018

Employment Status has been the focus of much media, political and social pressure over the last 18 months.

This has been highlighted by the Taylor Review, the changes to how “IR35” (off payroll working arrangements) are enforced in the public sector, the Uber / Deliveroo etc employment cases and the recent Budget announcement that the Public Sector rules are to be extended to medium and large-sized businesses in the private sector from April 2020 (subject to consultation).

What is the Good Work Plan?

The Good Work Plan, published on 17 December 2018, is the Government’s latest response to the Taylor Review. It focuses on a wide range of pay and engagement aspects including holiday pay, National Minimum Wage, agency workers, staff tips and information. However, this short article will focus on the Employment Status aspects to provide a broader sense of the picture being currently created by, seemingly, a number of different artists.

What has the Good Work Plan said about Employment Status?

• The Government has agreed to provide detailed proposals on the alignment between how employment status is governed from an employment law and employment tax perspective, given they currently have separate frameworks, leading to confusion. This can be shown where an individual may be a worker from an employment law perspective and be entitled to National Minimum Wage, Holiday Pay etc., but be considered self-employed from a tax perspective. This is due to employment tax not recognising “worker” status, unlike employment law. However, it is not known when this review will take place and no firm timescales have been announced.
• Despite the above, the concept of “worker” under the employment law status test will not be removed. Therefore there is uncertainty as to how employment tax will align with such status, given employment tax only recognizes two types of individual (employed and self-employed), rather than the three recognised in employment law (employed, self-employed and worker).
• The Government intends that the current emphasis on personal service (whether an individual can send a substitute) in the employment status tests should be changed by placing more weight on control. Effectively it is looking to remove artificial clauses from being taken into consideration where there was never any intention for a substitute ever to be provided as part of the engagement. Currently this is one of thefactors in assessing status from a tax perspective and one which HMRC’s Check Employment Status Tool (CEST) has a number of detailed questions on.
• The Government has confirmed it will work hard on providing better guidance and online tools to help employers assess employment status more effectively.
• The Taylor Review proposed that the level of NIC paid by employees and those self-employed people should be more consistent. However, the Good Work Plan states that this will not be taken forward, despite agreeing that the “the small differences in contributory benefits no longer justify the scale of differences in rates of National Insurance contributions”. This is particularly the case, when you consider that a business might be more minded to want to engage someone off-payroll to remove the need to pay NIC at 13.8% (as well as the Apprenticeship Levy).

Other key actions relating to Employment Status  

Given that much remains unknown following the Good Work Plan publication, it is important to delve a little further into the paint room to establish how much clearer the picture is when we consider the other threads.

The Good Work Plan announcements demonstrate that there are good intentions but when this action will be taken, how it will be taken and the actual difference it will make are still very much unknown.

HMRC published a paper on 11 December 2017 on the Mutuality of Obligation – This was due to many commentators identifying that Mutuality of Obligation was not included within its online Check Employment Status Tool (“CEST”) despite being a main factor in determining employment status.

Football Referees – The Professional Game Match Officials Limited (PGMOL), the body representing the referees successfully defended HMRC’s challenge that the referees they engage are self-employed. This case, heard in 2018, centred on control and mutuality of obligation and, following the case The Association of Independent Professionals and the Self-Employed (IPSE) called on the Government to write into statute “a positive definition of self-employment”.

HMRC has created a specialist Employment Status and Intermediaries Team to better focus its resources and expertise to address non-compliance with the off-payroll working rules.

 The Government plans to extend the Public Sector’s off payroll working rules into the Private Sector from April 2020 – a further consultation on the detailed operation of the rules, expected to be published in 2019, will inform the draft Finance Bill legislation, which is expected to be published in summer 2019.

 National Audit Office (NAO) Investigation into the BBC’s engagement with personal service companies (PSCs) – ordered by the House of Commons, this report was published on 13 November 2018. It highlighted that Between August 2017 and June 2018, the BBC used CEST to assess 663 on-air freelancers’ status, 92% of whom received an ‘employed for tax purposes’ determination. This contrasts with the situation before April 2017 where the BBC had assessed the majority of on-air freelancers as self-employed, using either its own assessment test or the radio industry guidelines.  The BBC’s view, and that of representative bodies is that CEST’s multi-sectoral approach means that it is not suited to media and broadcasting roles. HMRC is now consulting with the media industry about the employment status of freelancers with a view to updating its employment status manual and associated CEST guidance. This will replace the radio industry guidelines and the television, film and production guidance notes, and the BBC hopes it will set out clearly those on‑air and off‑air roles it deems to be employed and those self-employed, thereby reducing the need to use CEST.

 What does all this mean?

When you consider the broader picture, the good intentions from the Government’s response to the Taylor Review emphasise that there is not a consolidated, singular review being undertaken. Many different consultations, reports and Government bodies are involved, not to mention the various court cases from an employment law perspective (Uber, Deliveroo Pimlico Plumbers et al).

To carry on with the painful paint analogy, it does seem that there is a real risk that we will end up with a painting resembling a Picasso which is not at all a masterpiece.

Matthew Taylor, the leader of the “Taylor Review” also recently corresponded with Ian Goodwin, director at Mazars, on Twitter to confirm there was no explicit coordination going on within the Government to review employment status, only implicit coordination.

This highlights a key risk that no clarification will be provided swiftly and that when further information is made available the wider environment may impact on the success of any changes proposed.

What should businesses do next?

Although no changes have been formally made to how employment status is determined or to how off payroll working rules for engagements via PSCs are enforced within the private sector, businesses should take this risk seriously.

Why? Because this now a significant political and social issue – one that the Government’s concerns have led HMRC to review its internal structures to enforce compliance more effectively and can only be expected to lead to more HMRC challenges during PAYE reviews.

It is also important, given the wider employment law consequences of getting employment status wrong. This leads to potentially significant financial issues both in the short and long term for all “caught out” by an area that is both complex and lacking in legislation.

Our recommendations to businesses

• Review current arrangements with individuals directly and via PSCs by assessing both contracts and working practices.
• Implement a Checking system to determine status in advance of engagements commencing.
• Review regularly where engagements are extended or changes are made.
• Ensure all key stakeholders are identified and aware of their role in maintaining compliance and robust controls.
• Set up clear controls to manage off payroll engagements.

Where you require any support to help you complete this picture, contact Mazars’ Employment Taxes Team.