Recruiters have been urged to review their practices to ensure individuals are not being misclassified as self-employed.
The warning comes from employment lawyers after it emerged HM Revenues & Customs is launching a specialist unit to investigate firms suspected of withholding employment protection from workers, by using agency staff or calling them self-employed.
The move was confirmed last week in a letter from financial secretary to the Treasury, Jane Ellison, to Labour MP Frank Field, published on Field’s website.
Christopher Tutton, partner at law firm Constantine Law, told Recruiter that given the government’s move, agencies should review their practices now to ensure that workers and employees are receiving their statutory rights, particularly around the national minimum wage and holiday pay.
“The implications of failing to do so could be HMRC investigations and fines, class action litigation from workers on their books and significant reputational damage,” Tutton said.
He explained that a key feature of the ‘gig economy’ is its use of self-employed workers who do not benefit from national minimum wage protection, holiday pay and a host of other rights.
In his view, this has led to public concern in relation to whether employment rights are being eroded. “We are seeing litigation against gig economy employers as well as a government review into modern working practices in the gig economy.
“The government has cracked down on the tax implication of false self-employment in the last few years, by requiring agencies to treat agency staff as employees for tax purposes.
“However, the false self-employment rules did not mean that agency workers were treated as employees for the purposes of employment law protection.”
He said the government review into the gig economy was “much needed as employment law must keep pace with the modern world of work and strike the right balance between protecting rights and encouraging economic growth and enabling people to work flexibly.”
Meanwhile, Dr Sybille Steiner, partner solicitor at law firm Irwin Mitchell, said the government’s move signifies its determination to crack down on misclassified employees, as well as a commitment to take all necessary steps to ensure that companies pay the appropriate tax, national insurance contributions, interest and penalties.
“Details of the potential penalties have not yet been released… however, in order to avoid potential liability, recruitment agencies should be aware of the changes and ensure that individuals are not being misclassified as self-employed,” she said.
“Cases such as the recent Uber tribunal case have highlighted the potential arguments which may emerge if companies are found to be encouraging false self-employment and have shown the potential ramifications in terms of claims for benefits such as minimum wage, sick pay, holiday pay and pensions.
“For this reason, it is important for recruitment agencies to continually monitor the classification of employees and remember that employment status in the UK is determined by the reality of the working relationship, not simply by the terms written in the contract.”
Commenting on the launch of the new unit, Julia Kermode, chief executive of The Freelancer & Contractor Services Association, revealed she has already set up Ellison MP, adding she looks forward to discussing the issues with her and hearing more about the role and objectives of the unit.