What the proposals include, where they fall short and why they risk leaving the biggest challenges unresolved
The long-awaited arrival of the government's employment status consultation has largely disappointed, with questions already being raised over whether the proposals will deliver the simplification and certainty that flexible workers and the businesses engaging them have long been waiting for.
Published on 14th October, the consultation, Make Work Pay: employment status reform and protections for the self-employed proposed changes to make employment status clearer, improve protections for workers and tackle bogus self-employment.
But despite these ambitions, the government has ruled out addressing one of the biggest inconsistencies in the UK's employment status framework – the disconnect between employment rights and tax status.
From proposed changes to employment status tests and the possibility of another government status tool, we looked at some of the key takeaways.
Arguably, the biggest disappointment is the government's refusal to consider aligning employment status and tax status.
For instance, under the current system, contractors can be taxed as employees (i.e. inside IR35) without receiving any employment rights in return. This is a situation commonly known as ‘zero rights employment’.
On the other side of the same coin, many gig economy workers can find themselves classified as self-employed, despite working under conditions more akin to employment – leaving them without basic protections such as holiday pay and sick pay.
It's a longstanding issue – the elephant in the room, if you will – and one the government has missed an opportunity to address. What’s more, proposed changes to how employment status is determined without factoring in tax risks widening the divide between the two systems.
So, rather than simplifying employment status, ruling out aligning it with tax status means uncertainty and confusion look set to remain for the foreseeable future.
The government is also considering changes to the tests for employment status, placing less emphasis on personal service and substitution, while giving greater weight to the level of control a business exercises over an individual.
The thinking here is to stop businesses from using substitution clauses to classify individuals as self-employed when their working arrangements suggest otherwise.
However, with substitution and control also playing important roles in IR35 determinations, changing their significance for employment rights alone could create further inconsistencies between employment status and tax.
The consultation also raises the possibility of introducing a new online tool to help businesses and individuals determine employment status for rights purposes.
However, with HMRC's existing Check Employment Status for Tax (CEST) tool already facing criticism over its accuracy, introducing a second government tool – purely for employment rights – could create further confusion.
The prospect of two tools assessing the same working arrangement but potentially reaching different conclusions raises obvious questions about whether this would help or hinder flexible workers and businesses.
Another key focus is tackling bogus self-employment, where individuals are classified as self-employed despite their working arrangements suggesting they should be employed by a business – and in turn, subject to employment taxes.
One of the proposals is to shift the burden of proof onto businesses to demonstrate that an individual is genuinely self-employed – rather than requiring the individual to demonstrate this.
Key to this is the government’s proposal to explore a requirement for businesses to provide self-employed workers with a written statement outlining their working arrangements, alongside a potential role for the Fair Work Agency in enforcing employment status rights.
These measures could strengthen protections and tackle deliberate misclassification – alongside increasing the importance of businesses carrying out rigorous employment status assessments.
Ultimately, while the employment status consultation signals the government's intention to simplify things, its refusal to address the disconnect between tax and employment rights leaves a big problem unresolved. And without tackling that divide, there's a risk that reform will add further complexity to an already fragmented system.
The consultation closes on 8th January 2027, with interested parties invited to share their view with the government – something we at Qdos are eager to do.
Ask away! One of our team will get back to you!
