Single Worker Status instead of IR35 Reform for Contract Workers

On 24th May the Labour Party published an update to its proposals on employment law. This update can be found in “Labour’s Plan to Make Work Pay: Delivering a New Deal for Working People”.

The Labour 2024 election manifesto states that should they win, they will introduce an Employment Bill within the first 100 days of being in power. The plan proposes a number of changes to employment law, including changes for zero hour workers, changes to the fire and rehire practice, basic day one rights, redundancy rights and TUPE, whistle blowers rights, self-employment laws, changes to flexible working, the tight to switch off, fair pay, changes to trade union legislation and equality at work.

One of the main proposals put forward by the Labour Party is a change to employment status. This was put forward in their Green Paper, initially published in 2021, it is here where they propose to offer Single Worker Status for Contract Workers.

Why does Labour propose the Single Status of Worker?

Currently in the UK, individuals employment status are classified in three categories” “employees”, “workers” and “self-employed”.

They say that this framework often fails to provide clarity for workers and businesses. With an increase in “new ways of working” or more people becoming “self-employed” labour say that many workers find it difficult to get a clear picture of where they sit and what protections they are owed.

Currently “employees” are entitled to the largest number of employment rights. Labour says that in extreme cases the ambiguity around employee classification has been “deliberately used by employers to cut costs and avoid legal responsibilities”.

Single Status for Worker Proposal

Labour believes by simplifying the current classification of employment status they will tackle the above problems. Labour proposes to create a single status of “worker” for all workers except those that are genuinely self employed: “a simpler two-part framework for employment status”.

What does this mean for Contract Workers?

Contract workers (in most cases) will fall under the Single Worker Status. The Single Worker Status by Labour will give contract workers access to more employment rights (which they aren’t currently entitled to). However, this could also mean that contract workers currently taxed under self-employment rules will now be subject to PAYE.

What does this mean for Businesses?

Increasing the number of individuals entitled to the minimum employment rights could have significant cost implications and impose additional administrative burdens on employers.  Businesses could also be responsible for all tax and national insurance of all employees, whether they are contract or not. Most recently, upon review of the Green Paper in Labours latest proposal, they have promised to enter consultation with employers on this change.

What does this mean for IR35 repeal?

While some may have expected an IR35 repeal in the recent Labour proposal, this has not been the case and Labour is yet to specify its plans for the IR35 off-payroll rules.

In an interview, in February this year, Labour’s deputy leader Angela Raynor stated that the party’s most IR35 related proposal is “Single Worker Status”.

ContractorUK recently published an article on Single Worker Status and IR35, whereby they collate some concerns over the Single Worker Status and lack of IR35 Reform specifically in relation to Contract workers.

Labour Business vice-chair told ContractUK, “a contractor caught by the OPW rules (inside IR35) should therefore be classified as a worker, and provided with the appropriate rights.”

So while Labours proposal may not reform the IR35 changes or release contract workers from inside IR35, the Single Worker Proposal should provide contract workers (now inside IR35) with the same or similar rights to those who are traditionally classified as “employees”.

But ContractUK also quote one of their readers raising a new concern on Labours classification system;

“There will be edge cases of course, but I fear contractors as we know them won't be in scope, if only because they are already covered by [the] Chapter 10 [legislation]. Oh, and if SWS does get into the Labour manifesto, don't expect it to be actioned any time soon.”

Neither the results of the election nor the timing of any changes are certain. However, contract workers and employers should be aware of the proposed changes so that they can update their employment status or complete an audit of workers accordingly if the time comes. Granite is an umbrella company offering support to contract workers and businesses and is always happy to offer impartial advice.