Government consultation launched on employment status

The Government is consulting on proposed changes to employment status. Its aim is to reduce bogus self-employment, address the misuse of substitution clauses, clarify who is entitled to employment rights and improve protection for genuinely self-employed people. The Government estimates that more than 900,000 people could benefit from the proposals.

For employers, the proposals are particularly relevant when engaging consultants, freelancers, contractors or other individuals on a self-employed or non-employed basis, especially where their status may be unclear. 

What is bogus self-employment?

Bogus self-employment can arise where an individual is labelled as self-employed, allowing statutory obligations to be avoided but the day-to-day reality is that they are treated as a worker. As a result, the individual may miss out on core rights such as the National Minimum Wage and paid holiday. The Government says that clearer rules should help to create a level playing field for employers that already classify individuals correctly.

What is a ‘worker’?

One of the main proposals concerns individuals with ‘worker’ status (also known as ‘limb (b) workers’). Workers personally perform work or services for another party but are not genuinely running an independent business and are not working under an employment contract. They have certain employment rights, including the National Minimum Wage and paid holiday.

The current three categories of employment status – employee, worker and self-employed – will remain under these proposals. The Government is still considering a single worker status as a longer-term aim, but it is not proposing that change now.

Why does employment status matter?

Employment status determines which statutory rights an individual receives. Employees have the widest range of employment rights. Workers have a more limited set of rights, including the National Minimum Wage and paid holiday. Genuinely self-employed people generally have fewer employment rights, although some protections may still apply. The proposals are expected to bring more individuals within worker status, meaning that some people currently treated as self-employed could become entitled to worker rights.

How would the worker test change?

Under the proposed test, either a requirement for personal service or a significant degree of direction or control over the individual’s work would lead to a further assessment. That assessment would consider whether the individual is genuinely carrying on a business and whether the employer is their customer or client.

This would give greater weight to control, without removing personal service from the analysis. A genuine right for someone else to perform the work would therefore not necessarily prevent worker status if, in practice, the employer still exercises significant control.

How would the rules be enforced?

In an employment tribunal claim, an individual could be presumed to have worker status unless the employer proves otherwise. This presumption would concern employment status only. It would not, by itself, establish that the underlying employment right had been breached.

Repeated failures to recognise worker status could be treated as an aggravating factor when a tribunal considers penalties. This could apply, for example, where other individuals have already succeeded in claims based on materially similar facts.

The Fair Work Agency could also be given a role in bringing cases involving suspected bogus self-employment. In addition, the Government is considering a non-binding online tool to help employers assess employment status.

These proposals relate only to employment status for employment-rights purposes. The tax framework remains separate and has two categories: employed and self-employed. This means that an individual may have worker status for employment-rights purposes but be self-employed for tax purposes.

What protections are proposed for genuinely self-employed people?

The Government is considering a right for genuinely self-employed people to receive a written statement of key terms. This could cover the work to be carried out, payment arrangements and how the engagement can be ended. The consultation asks whether the right should apply only where an engagement exceeds a minimum duration or value.

The consultation also considers extending blacklisting protections and protection from detriment to self-employed individuals.

What should employers do now?

The proposals form part of the Government’s Plan to Make Work Pay and remain at consultation stage. Employers should keep developments under review and consider reviewing their existing arrangements. Contractual labels alone do not determine employment status. The consultation closes on 8 January 2027. Employers can read and respond to the consultation here:  Government consultation.