13 Feb Taylor Review: Government reforms will see changes for PHV industry
Government plans to expand workers’ rights in the ‘gig economy’ will impact on companies like Uber who claim drivers are self employed, zoom.taxi has said today.
The ‘gig economy’ is a labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs meaning millions of workers don’t have access to the rights and benefits of workers in permanent positions, making them vulnerable.
There has been a shift in policy towards legislating to ensure these workers have greater rights and the following the Taylor Review the government is proposing changes in stricter enforcement of holiday and sick pay and higher fines for firms that breach contracts or mistreat staff.
The Business Secretary Greg Clark said the measures would “address very clearly” the rights of those in insecure work adding that the government would “be enforcing the rights that people have and are entitled to.”
In the private hire industry the company best known for using these types of contracts is Uber, whose drivers are said to be self employed meaning that they do not have to charge VAT on their fares and Uber does not have the responsibilities which come with having employees.
The government’s proposals went even further than the Taylor Review, enforcing workers’ holiday and sick pay for the first time.
They also proposed a list of day-one rights, including holiday and sick pay entitlements, as well as a new right to a payslip for all workers.
But analysts have said that much of what has been announced simply involved enforcing and clarifying existing laws, with no changes made in aligning legal employment status with tax status. Changes to National Insurance Contributions, specifically the increase in the top rate charged, is “not in the scope” of this employment status consultation.
The Spring Budget of 2017 included an attempt by the Chancellor to raise NICs for the self employed but this resulted in a serious backlash particularly from the party’s supporters who said the Conservatives should be a party of lower taxation to increase incentives for companies to start up and people to take on staff.
Anne Fairpo, The Low Incomes Tax Reform Group chair, said not including these changes in the response to the review was an error. “It often seems to be the desire to save tax, and employers’ NICs, that leads to false categorisation of workers and much of the labour market abuses that the Taylor Review attempted to deal with,” she told Accountancy Age.
John Cullinane, tax policy director at the Chartered Institute of Taxation said that the difference between NICs for employed and self-employed people “creates a perverse incentive for employers to try to engage with people ‘off-payroll’.”
Currently there are three categories of worker under employment law (employed, worker and self employed) but only two in tax law (employed and self employed). The rapid development of the gig economy has meant that legislative structures have not kept pace with the market and it is this gap which companies have sought to use to lower their tax burden.
By refusing to consider NIC changes, Cullinane says: “the Government are denying themselves many of the tools they need to tackle the issues Taylor identified around employment status”.
The Taylor review suggested the ‘worker’ category change to ‘dependent contractor’, but this still leaves a mismatch between legal and tax classifications.
Some groups have been calling for these ‘gig economy’ workers to be reclassified as employed instead of self employed, claiming that the flexibility offered by self employed ‘staff’ has led to unfair competition, most notably in those not charging VAT for services where their competitors have to.
Fareed Baloch of zoom.taxi said,”If drivers, for example, who are currently classed as self-employed then become employees of a company this increases the national insurance contributions for them and the business they work for which could discourage the company taking on workers.
“However in the private hire industry this loophole has in reality cost jobs and lowered competition because smaller companies are struggling to compete with companies like Uber who can use their huge wealth to employ compliance and tax experts to keep their tax burden low. Smaller companies just do not have the capacity to do that.
“It is not simply a case of making everyone employees or everyone self employed: there are costs and benefits to both. The solution the government should be looking for is one where there are low barriers to entry and a good level of competition in a market. This keeps prices lower for consumers, gives employees the possibility to work for more than one ‘big’ employer and stops multinationals dominating a market which in the long run is worse for everyone else.”
Uber drivers are now considered to be workers, so they are entitled to these benefits. This means that Uber, rather than insisting they just provide the software for self employed drivers, will now have the increased costs of sick pay and holiday pay.
The government’s plan will make sure that everyone knows what they’re entitled to when they start working for a company and the rules will now be enforced by HMRC, so people actually get what they’re owed.