Defining employment in the gig economy

The growth of the ‘gig’ economy has been controversial. Some workers like the flexibility of short-term contracts – giving them the choice of when and where they work. Others need the security of longer-term employment with guaranteed hours.

Flexible resourcing – the pros and cons for employers

Employers in some industries value the ability to engage the best person for each project. Others need a stable workforce. Criticism centres largely on two areas: the lack of employment rights for workers, including the minimum wage, and the tax consequences of workers’ self-employed status, especially lower national insurance contributions (NICs) and in some cases, avoidance of VAT. In July, the government announced the setting up of a working party within the Department for Transport to enquire into the pay and working conditions of drivers for the taxi company Uber after claims that some were taking home as little as £2 an hour. Uber classifies its drivers as self-employed, but last year an employment tribunal decided that two drivers who brought a test case were working as employees within the meaning of employment legislation, once they had logged into the Uber app and were able and willing to accept assignments within their work area. They were therefore entitled to employment rights including paid annual, sick and parental leave, the minimum wage and employers’ pension contributions. The decision is under appeal.

Who is a ‘worker’?

A review of the impact of modern employment practices, commissioned by the government and led by Matthew Taylor, has recommended a clearer definition of the intermediate employment law category of ‘worker’ – covering casual, independent relationships – who would enjoy limited employment rights. The review proposed renaming these workers ‘dependent contractors’. It advocated greater consistency of tax and national insurance contributions between employment and self-employment over the long term. Before the review reported, the food delivery firm Deliveroo announced that it would pay sickness and injury benefits to its riders if the law is changed. Deliveroo says that it classifies its riders as self-employed to give them the flexibility to work whenever they want, but that this classification prevents it from offering enhanced employment rights. Deliveroo has recently changed its agreement with riders by removing a clause prohibiting riders from challenging their employment status at an employment tribunal. The agreement now states that riders do not have to wear branded clothes while working, clarifies that riders can work for other companies and removes riders’ obligation to give two weeks’ notice to terminate their engagement. Deliveroo’s last three changes are clearly directed at strengthening the company’s argument that riders are self-employed.

Determining status

Whether a person is self-employed or an employee for tax purposes is determined by several factors, many of which boil down to the question of whether the individual can be said to be genuinely in business on their own account.

Employers who fail to deduct tax and account for NICs on payments to workers generally have no recourse to the workers if HMRC rules that the worker is not self-employed.

You can use HM Revenue & Customs (HMRC) online employment status indicator to check whether an engagement is likely to be an employment or self-employment at
To discuss this article in more detail, or to discuss any wider tax planning, please talk to us. T: 020 7376 9333 E:

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