Taylor review proposes a 'dependent contractor' status and asks the self-employed to pay more

Matthew Taylor's review of modern working practices, commissioned by the Prime Minister last October and published yesterday, proposes to rename the middle category of employment status, to make it easier for workers to claim, and to close the gap between the National Insurance paid by employees and by the self-employed. For the contracting industry, which has spent eighteen years arguing about which side of a line it sits on, the review moves the line and adds a third.

The report, Good Work, keeps the three-tier structure of employee, worker and self-employed that the courts have developed, but renames the worker category dependent contractor and proposes that the law should set out the tests for it in statute rather than leaving them to case law. Control should carry more weight, the review argues, and the right of substitution less. Someone who is told what to do, when and how, and who cannot in practice send anyone else, would be a dependent contractor entitled to the minimum wage, holiday pay and protection from discrimination, whatever their contract says.

The tax question

The review was not asked to make tax recommendations and makes them anyway. It says the difference in National Insurance between employees and the self-employed is not justified and should be reduced over time, which is the argument the Chancellor made in March before withdrawing the Class 4 increase within a week. It also proposes that the tax and employment definitions of self-employment should be brought into line, so that a person cannot be an employee for tax purposes and self-employed for rights, or the reverse.

That proposal would end the position in which a contractor caught by IR35 pays tax as an employee and receives none of an employee's rights, which the industry has called unjust since 2000. It would also end the position in which a contractor outside IR35 pays less National Insurance than the employee beside them, which the Treasury has called unjust since about the same time. The review offers both sides what they have asked for, on the condition that they accept what the other side has asked for too.

Online tools and platforms

The report's proposals on the gig economy have taken the headlines: a requirement that platforms show workers what they will earn before accepting a job, a higher minimum wage for hours that are not guaranteed, and a right for agency workers to request a direct contract after twelve months. For professional contractors the relevant recommendation is a different one, that the government should develop an online tool for employment status, modelled on HMRC's check employment status for tax service, so that a worker and an engager can find out which category applies before a dispute arises.

HMRC's own tool has been in use in the public sector since April. The industry's experience of it so far, that it returns inside IR35 for many engagements that advisers regard as clearly outside, does not suggest that a rights version will be received with enthusiasm.

What happens next

The Prime Minister welcomed the report and promised a response. Her government has no majority and a legislative programme dominated by leaving the European Union. The trade unions called the review timid. Business groups called it balanced. The self-employed bodies welcomed the recognition that genuine self-employment is a legitimate choice and warned against anything that made it harder.

The review's most durable effect may be to have written down, in a document the government commissioned, that the three-way split in status is a problem, that tax and rights should march together, and that a statutory test is needed. Governments have said the opposite for twenty years. Whether this one acts on it will be clearer by the Autumn Budget.