Dependent Contractors & Employee Benefits

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Last month the Taylor Review of Modern Working Practices* was published with an associated fanfare of national media coverage.  It is expected that the outcomes of this document will help shape working practices in the UK for some years to come.

For the uninitiated the principal issue to be addressed* in the review is explored below:

  1. The vast majority of the UK’s workforce are employed by others, and therefore fully protected by Employment Law.
  2. A second, smaller, grouping is genuinely self-employed.  As such, they do not of course benefit from Employment Law protections.  The self-employed typically pay less in National Insurance (NI) contributions than an employed individual on the same income, and are not subject to Employers NI.
  3. Which leaves one other grouping – those that fall somewhere between the above two definitions.  These individuals are often treated as self-employed, but are largely (or sometimes solely) reliant on one organisation for their flow of work assignments and therefore income stream also.  Largely because of the inherent flexibility in this arrangement for employers – plus significantly lower rates of National Insurance liability for both employing organisation and the individual – this grouping has been on the rise in recent years.  Many of these workers are on zero-hour contracts and are often referred to as “gig” workers.

This issue has had its fair share of the political limelight in recent years, and was a hot-topic in recent General Elections.  Accordingly it has been characterised in generic terms by the political parties.

Those on the Left of politics would like the electorate to believe that all zero-hours workers are an exploited underclass with no control over their working hours or conditions.  Whereas the political Right tend to focus on the positives of such “employment” – highlighting that many such workers and employers find the flexibility of such arrangements beneficial.  As is often the case the truth lies somewhere between these two poles of argument.  However all sides appear to accept that at least some workers from (3) above are genuinely disadvantaged by the arrangement.

A procession of recent legal cases has further highlighted some of the inequities, contradictions and confusions in the approach taken by different employers in this area.  It is hoped that The Taylor Review is an important step towards resolving some of these conflicts, and will also simplify the process of establishing the employment status of an individual or group without constant recourse to the legal system.

The key approach championed by the review is the creation of a new status for those caught between the two extremes of employment and self-employment.  The review suggests that a definition of “dependent contractor” will better reflect the reality of modern day working arrangements for this grouping.  Dependent contractors will be an individual who is not an employee, but neither are they genuinely self-employed.  The report goes on to say:

“Ultimately, if it looks and feels like employment, it should have the status and protection of employment.”

The full document can be read here.

Clearly there is some way to go to develop the dependent contractor test, and to isolate what rights and duties this proposed new status will ultimately place on both employer and worker.  It is also possible that the continued growth – or even use – of this class of worker may be dependent on how such individuals and organisations are treated for tax and national insurance purposes in the future.  So much remains to be clarified at this early stage.

Yet already this approach is raising some interesting red-flags for employers to consider with regard to employee benefit provision for dependent contractors.

If we accept the argument that dependent contractors should benefit from minimum income levels in line with the National Minimum Wage and/or National Living Wage, and also that holiday entitlements should be granted in some fashion as well, then an argument could yet be made that other employee benefits provided by the sponsoring employer for full employees may also have to be made available to dependent contractors.

The first port of call for consideration here is that of pensions.  The Conservative’s Manifesto for the 2017 election made mention of extending Pension Auto-Enrolment to the self-employed, and it follows that dependent contractor status might be a useful first-base in that particular mission.

But what about benefits that are not necessarily driven by a legal compulsion?

Most good employers of any reasonable size provide a range of employee benefits.  The reasons behind each benefit offered may vary, but drivers most certainly include employee motivation and productivity, absence management, and of course moral duty.  It’s difficult to see why these features would not extend to dependent contractors also.

So regardless of legal compulsion, many employers may in the future start to consider extending their benefits offering to embrace dependent contractors.  There may be some practical difficulties in providing or insuring such benefits, and this is doubtless something we will comment on if and when the government progress the Taylor report further.

For more information on this topic – or company sponsored Employee Benefits – please speak to your usual Jelf Consultant.

Best regards

Steve

*Simplified overview only – please see the Taylor Review for full details.  Please take formal legal advice before acting on anything in this post

 

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About the author

Steve Herbert is an award-winning thought leader on Pensions and Employee Benefit issues. His principal aim is better communicating the value and usage of employee benefits to employers. This he has achieved through many (highly successful) seminar series over the last decade, and his regular and widely read blog posts on the subject.
He also acts as a judge in HR and Employee Benefits industry awards, article writer, and product innovator. Steve is a regular contributor to DWP forums and compulsive responder to formal Government Consultations on pension and employee benefit issues. He is occasionally accused of making employee benefits interesting.