Briefing | What are the options for employment status reform?

An ongoing problem

It is not the first time there has been a push to reform the employment status system in the UK. It was criticised by the 2017 Taylor Review of Modern Working Practices for its complexity, which has resulted in many legal challenges to establish whether people are ‘employees’, ‘workers’ or self-employed.

Following the Taylor Review, the previous UK Government failed to take forward its plan to legislate to improve the clarity of the employment status tests and to take action to align the employment status frameworks for the purposes of employment rights and tax.

In the meantime, case law has continued to evolve. One of the most high-profile recent cases saw Uber reclassify its previously self-employed drivers as ‘workers’ following a landmark ruling in the UK Supreme Court. However, while the Uber ruling provided a useful and important addition to case law on employment status, it fails to resolve the ongoing ambiguity over the issue faced by both organisations and individuals. It will often remain fiendishly difficult for even the courts to decide legal arguments over employment status under the current system. 

Current plans

The UK Government’s proposal would effectively mean removing the middle tier of ‘worker’ status under which people have some, but not all, employment rights. For example, ‘workers’ qualify for paid holidays, discrimination protection and the right to earn at least the national minimum wage but they don’t have protection against unfair dismissal or statutory redundancy pay enjoyed by those who fall under employee status.

Under the government’s plan, people would either be categorised as ‘workers’ with full employment rights or self-employed, which would potentially help provide more clarity for both those categorised as ‘workers’ and businesses over employment status and associated rights. A simpler two-part framework would also make it easier to align status for the purposes of both employment and tax.

However, reforming employment status in this way would be a very significant and complex change to the law at a time when employers are also having to adapt to a raft of other changes to employment legislation.

To help provide evidence to inform the forthcoming consultation on employment status reform, the CIPD has conducted research to understand how widely employers use ‘worker’ status and the impact of its potential removal.

How prevalent is the use of ‘worker’ status?

Data collected as part of CIPD’s Labour Market Outlook – Spring 2024 survey of employers found that the use of ‘worker’ status was quite widespread, with 39% of businesses saying they employ anyone with that status. Larger businesses were most likely to use ‘worker’ status (50%), with only a quarter (24%) of SMEs using it. Use of ‘worker’ status was most common in transport and storage (56%), construction (55%) and manufacturing (50%). The survey also found relatively common use in healthcare (including social care) and the public administration and other public sector (48%).

Widespread use of 'worker' status across sectors

Figure 1: Comparing use of ‘worker’ status by sector and organisation size  

Employers that employ staff using ‘worker’ status typically do so for a relatively small proportion of their workforce. Of those employers using ‘worker’ status, just over four in ten (42%) said that between 1% and 20% of their workforce was employed in this way.

In all, 8% reported that between 21%-40% of their workforce were in this status, while 2% of organisations said they used ‘worker’ status for between 41% and 60% of their workforce and a further 2% said between 61% and 80% of their workforce was employed in this way. A high proportion of respondents (45%) said they didn’t know what proportion of staff were employed under ‘worker’ status, highlighting the challenges in defining and understanding employment status faced by many employers.

'Worker' status is common, but not typically a large proportion of a workforce

Figure 2: Proportion of workforce who have 'worker' status

Why do employers use ‘worker’ status?

There are a number of reasons why employers choose to use ‘worker’ status. Half (50%) who use it do so to improve workforce flexibility (eg to employ temporary or agency workers). Another justification, given by 41% of employers, is that it is used as a way to fill in gaps while permanent staff are appointed.

Nearly a third (31%) of employers say they employ staff on ‘worker’ status because it is the preference of individuals, while 17% of employers say they use ‘worker’ status to lower employment costs. A higher than average rate of employers in construction (40%) and manufacturing (37%) use ‘worker’ status to lower employment costs.

A similar proportion (16%) employ staff under ‘worker’ status because they are easier to dismiss than employees. Again, this is higher in construction (43%) and manufacturing (35%).

In addition, 15% of organisations employ people on ‘worker’ status as it means they have fewer employment rights than employees. This is more likely in healthcare, inclusive of social care (31%), retail (24%) and transport and storage (23%).

Options for reform

Previous CIPD research has highlighted the arguments for moving to a two-part employment status framework by abolishing the middle ‘worker’ status, including the point that many owner managers in smaller firms don’t understand or use ‘worker’ status.

However, changes to be introduced in the Employment Rights Bill such as the removal of the two-year unfair dismissal qualifying period and restrictions on the use of zero-hours contracts will reduce the flexibility of the UK’s employment rights framework. This may mean that employers might find it harder to adapt to the removal of ‘worker’ status than they otherwise would have done. 

Consequently, it is crucial that the government is in listening mode when it consults on employment status reform. The CIPD will be engaging widely with members on this key issue to inform our response to the government. It is important the voice of the HR profession is heard in this debate as it will be HR practitioners who will play a central role in interpreting any changes to legislation in workplaces across the UK and ensuring businesses are compliant.