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Employment rights for contractors? | Contracting Scout

Employment rights for contractors?

Mathew Taylor’s independent 2017 review into Modern Working Practices in Britain drew attention to an insecure ‘gig’ economy where many workers are at risk of exploitation. This led to Prime Minister Theresa May responding to the findings earlier this year by promising millions of workers better holiday and sick pay rights, in addition to stronger contracts. Labour also recently pledged to extend the rights of self-employed workers if they were elected, granting them similar entitlements to those of permanent employees.


Taylor has rated the Government’s response to his proposals at just four out of ten, saying that more needs to be done to address Britain’s insecure workforce and low productivity. In response, those inside the contracting industry have urged the government not to presume that all contractors and self-employed workers want employment rights.


The problem, it seems, lies with insufficient differentiation within the freelance sector. While a significant proportion of workers are at risk of being exploited by unscrupulous organisations, there are many workers who have chosen a freelance lifestyle for the flexibility, choice and control it offers them. Many contract workers don’t want employment rights as they can confuse the matter of proving self-employment when it comes to determining factors such as IR35.


By adopting employment rights, bona fide contractors could be at risk of losing out in IR35 investigations as HMRC appears to operate according to a double standard. While the presence of employment rights, if detected by its online CEST tool, will automatically result in an inside-IR35 determination; the opposing principle is not applied: the absence of employment rights is simply ignored by HMRC.


Contracting professionals deemed to be inside IR35 will find themselves in the unfavourable position of having employee-level tax and National Insurance contributions deducted at source on a PAYE basis. Meanwhile, they will receive zero entitlements to employment rights and benefits, even though they are considered an ‘employee’ for tax purposes.


With similar IR35 off-payroll rules likely to reach the private sector in the near future, such discrepancies need to be addressed as a matter of urgency. If forced to work inside IR35, it’s likely that contractors will start to demand the employment rights that they’re entitled to. It’s also worth noting that contractors working under an umbrella company do receive employment rights but not at the same level as those enjoyed by the end client’s staff. A compliant umbrella company is increasingly recommended by industry professionals as a viable option for contractors working inside IR35.


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