KPMG has submitted its views on the Government consultation on employment status, which was launched in response to the Taylor Review.
The Taylor Review of Modern Working Practices highlighted that the labour market is rapidly evolving.
Flexible, innovative ways of working are challenging the traditional employment model. Distinguishing between workers, employees and the self-employed is becoming increasingly complex.
The government launched a consultation on employment status to canvass opinion on current issues with the employment status framework, how to improve the status test, and whether it is desirable to align the tests for tax and employment.
KPMG’s experts from Employment Legal Services, Employment Tax and VAT responded to the consultation.
A copy of that response is available here.
The key points are summarised below.
Employment status has far reaching consequences. It is important that there are clear and distinct categories of labour that individuals and businesses of all sizes are able to understand.
This can only be achieved by ensuring that those statuses reflect modern working practices, and balance the legal, tax, commercial and operational drivers that determine how businesses operate day-to-day.
The category of “worker” is difficult to conceptualise and individuals engaged directly are rarely attributed this status.
Instead of creating a new category of “dependent worker”, government should address the protections, rights and entitlements appropriate for employees occupying different roles and working patterns.
We need to move away from the irreducible minimum of mutuality of obligation, personal service and control and introduce an objective assessment against a broad range of status indicators.
There should be a fuller debate on the meaning of employed and self-employed in the modern world but, in any event, their meaning should be aligned for employment rights, tax, and social security purposes.
The tax and social security positions - particularly Employer’s NIC at 13.8%, which applies to remunerating employment but not self-employment - can distort how businesses engage labour.
By reducing the tax and social security distinctions between employees, workers (if applicable) and self-employed, this would remove the financial motivation for mis-categorising employees (or workers) as self-employed and/or engagers adapting their business models to minimise the tax and NIC costs.
Mirroring the tax approach, in a legal context, consideration should be given to looking beyond a contract between an engager and a personal service company and assessing the reality of the working relationship for employment rights purposes.
An online status indicator tool should be created together with guidance to support individuals and businesses to apply the new status categories with ease.
Raising the profile of employment status should help individuals and businesses consider appropriate labour engagement and reduce mis-categorisation. Where there are disputes, a streamlined system would support swift remediation and could highlight engagers who are regularly engaged in status disputes.
© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.