Reforming employment status: understanding the ‘what’, ‘why’ and ‘how’

Blog posts

26 Sep 2024

Dr Duncan Brown, Principal Associate

Follow @duncanbHR

‘Labour’s plan will make work pay. We’ll boost wages, make work more secure and support working people to thrive – delivering a genuine living wage, banning exploitative zero hour contracts, and ending fire and rehire.’ Labour’s Plan to make Work Pay: Delivering a new deal for working people May 24^th 2024.

What is it?

‘Reforming employment status’. Hardly a declaration to get the blood racing is it? Not like these other headlined areas in the new government’s package of reforms and enhancements to employment rights.

GB News ‘petrified’ its viewers at the opening of the Labour Party Conference in Liverpool on Sunday with the headline‘Angela Rayner confirms NINE radical policies to bolster trade unions and cripple businesses are imminent: 'Coming to a workplace near you!' And they didn’t include employment status reform.

Employment status didn’t warrant a mention in the King’s speech in July outlining the new government’s legislative programme for the year ahead, including the Employment Rights Bill that was promised next month by Deputy Prime Minister Rayner in Liverpool.

Probably because, as an HR director described it to IES in our research for the CIPD’s report on the issue in 2020, Reforming Employment Status, ‘it’s such a complex area to explain, never mind reform… nobody understands it.’

But employment status reform is rightly there, hidden away in the middle of Labour’s 20-page employment manifesto as part of its ‘new deal for working people’, to be addressed at some future stage presumably.

As that set of election commitments describes, the UK unusually has a three-tier system for employment status. As Acas explains, you can be classed as an employee, self-employed or thirdly as a (weirdly named) ‘limb (b) worker’.

These workers have some employment rights, like employees and unlike the self-employed, such as a right to paid holidays, discrimination protection and most significantly perhaps, to earn at least the national minimum wage. But limb workers have far fewer rights than full employees, for example no protection against unfair dismissal or entitlement to statutory redundancy pay or notice periods, nor to make statutory flexible working requests or to take time off for dependants.

Why do it?

As Mathew Taylor described in his government-commissioned report back in 2017, The Taylor Review of Modern Working Practices, and cited by Labour:  ‘The rise of new technologies and ways of working has exacerbated this (definitional) challenge, with workers and businesses struggling to apply the complex legal framework to novel forms of working and operating.’ Labour’s manifesto goes on to explain: ‘This means many workers find it difficult to get a clear picture of where they sit and what protections they are owed, while business can also struggle to comply with legal obligations.’

So while this issue can sometimes seem to be one of overly-theoretical and arcane debates over legal definitions, as a new report from the Fabian Society commissioned to inform Labour’s approach illustrates very well, it is actually ‘incredibly important’. For example, for the courier you see weaving through the busy traffic on their bicycle, employment status determines vital areas such as whether or not they are entitled to sick pay if they get knocked off, and who pays to fix their bike.

Labour’s comprehensive proposals for new employment rights makes employment status even more important to address, for as employment journalist Delphine Strauss described it last week, ‘Lawyers, union officials and business representatives have warned that workers will not necessarily benefit from the reforms if employers remain able to exploit grey areas in law over their employment status…companies will have new incentives to take people on as self-employed contractors, temps or agency workers.’ 

How to do it: Three categories or two?

As the Fabian report summarises really well, there are essentially two options: improve the current definitions and their enforcement; or move to single worker status, with the latter route recommended by IES and the CIPD in our report.

Labour’s manifesto perhaps surprisingly endorses the single worker status option: ‘Labour believes our three-tier system of employment status has contributed to the rise of bogus self- employment.. we will move towards a single status of worker and transition towards a simpler two-part framework for employment status.’

So, assuming that they move forward with this proposed change to a simpler, single worker status category after year one, how might the Labour government maximise the benefits and chances of success?

Based on our earlier research with CIPD and understanding of the current employment situation and government policy, we would recommend and support the following steps:

1. With CIPD, IES has recommended that the government form an expert stakeholder commission to clearly define the employed and self-employed categories and the dividing line – with ‘clear blue water’ between them. The commission would contain and consult with all key stakeholders – employers, trade unions, politicians, lawyers in working up and the definitions.
2. As important as the new legal definition will obviously be, the development of non-statutory guidance and indicative tools on status, informed by the commission and provided by Acas and other relevant bodies, is equally critical in making this change and making it work more effectively.
3. Even existing employment rights, never mind enhancements to them as proposed in Make Work Pay, are of little value if they are not enforced. Labour’s proposal for stronger enforcement through a new, more powerful and better funded Fair Work Agency, will therefore be vitally important to making the employment status change effective.
4. Related changes to reduce the incentives for, as well as the barriers to, bogus self-employment might also be considered, for example by improving protections and benefits such as sick pay for the self-employed.

Reforming employment status: making it work

‘You would start with employment status, if you had the luxury of doing things in a logical and sequential way.’ Ben Willmott, head of public policy, CIPD (2024)

The new Labour government clearly has a huge policy agenda and faces an unenviable fiscal situation/’black hole’ in trying to progress it. Even on employment rights alone, there are over 70 proposals already made in the Kings speech.

The delay in making this change is perfectly understandable. But as Ben indicates, it’s also dangerous. Pressing ahead with other reforms, without resolving this fundamental issue of status, could backfire badly if employers can easily misclassify employees as self-employed. Rewriting employment status will be controversial and fraught with difficulty. But the Labour party has, I believe, rightly highlighted the issue and plans to progress the optimum solution of a move to single worker status.

Let the consultation (and action) begin!