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The Gig Economy – the importance of defining working relationships

Posted: 7th April 2017

The rising status of the term “gig economy” highlights the importance of determining a person’s employment status.

Firstly, what is meant by the gig economy? One definition states that it’s “a labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs.” Essentially, it describes the increasing number of UK workers (now estimated at five million people) who get paid for the ‘gigs’ they do, such as a delivery or taxi journey.

Despite the recent employment disputes hitting the headlines, the flexibility of this type of work can benefit people wishing to have control over how much they work, and also for employers who only have to pay people when the work is available without incurring ongoing staff costs. It is the employment status and the rights that those working in this market are entitled to which is currently in question.

Most working relationships are clear and easy to classify. Someone is an employee, worker or self-employed and enjoys associated rights or flexibility. However, developments in the “gig economy” prove that understanding employment status is not always so straightforward.

Companies using ‘gig’ staff often pay and treat them as self-employed, manipulating written terms or deliberately using vague or unwritten terms to reinforce this despite many indicators of employment or at the least, worker status. The distinction between a worker and an employee or a worker and a self-employed person can often be blurred and difficult to determine even for employment tribunals. Therefore the associated rights can be equally blurred and uncertain. The key element which has determined recent case decisions is whether ‘self-employed’ gig staff are really workers, entitled to holiday pay and the National Minimum Wage.

Fairly high profile cases involving Uber, CitySprint and Pimlico Plumbers highlight various issues that employers would be advised to consider.

• Although tribunals take into account written agreements between the parties, they also consider other factors before determining the true nature of the working relationship.

• Employers should be prepared to re-examine their working arrangements. They may vary from time to time and appropriate procedure should be put in place to identify these changes.

• Tax law and employment law are not always parallel in recognising a person’s employment status. The fact that a person is considered as self-employed for tax purposes does not necessarily mean that they will not be treated as a worker under employment law and vice versa.

• Failure to determine a person’s employment status properly may result in non-compliance with immigration laws. Employers are required to carry out relevant ID and right to work checks with regard to their employees and workers but not self-employed contractors.

• Determining appropriate working status should be part of a company’s risk management processes. It will also have a positive impact on image and give comfort to shareholders, customers and contractors.

• The UK Government has recently launched a number of inquiries regarding employment status. This includes the Taylor review on modern employment practices. The outcome may still further widen the scope of worker status.

Business Comment

Business Comment is the Edinburgh Chamber of Commerce’s bi-monthly magazine. It provides insight on Edinburgh’s vibrant business community, with features on the city’s key sectors, interviews with leading figures and news on new business developments in the capital.
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