Labour’s Single Worker Status: what it might mean for contractors and hiring organisations

The new Labour government swept to power on a raft of proposed reforms, including plans for Single Worker Status to potentially change how workers are classified in the UK – plans which were in-step with the Employment Rights Bill in Wednesday’s King Speech 2024, writes Christie Jamieson, employment associate at law firm Dentons.

What is Single Worker Status?

Outlined in detail in Labour's ‘Plan to make work pay’ (published in May 2024), Single Worker Status is about introducing a new single status of worker as part of efforts to improve pay and conditions for working people. It also appears to be about making resourcing and compliance simpler for businesses.

Looking at the May document, it’s clear that Labour’s intention is to transition to a framework that only differentiates between the genuinely self-employed and all other workers.

While this measure was not foregrounded in Labour's election campaign, and missed an overt mention in this week’s King’s Speech, the party has not sounded any intention to row back from this policy plan which could potentially, but significantly overhaul how contractors are treated under employment law.

Worker status recap

In the UK, worker status is split into three tiers: ‘employees,’ other ‘workers’ and ‘self-employed,’ each with different rights and responsibilities.

Worker status has been a hot topic in recent years with the rise of the ‘gig’ economy, as under the current framework, it can be difficult to assess an individual's status.

The (concerning) grey area

This can be confusing for both employers and employees, creating a grey area that some employers exploit to save employment-related costs and prevent individuals claiming employment rights. Labour is clearly concerned about this grey area.

On the other hand, some individuals - including many IT contractors - appreciate the flexibility of not being an employee, and very much like working on a ‘gig’ basis.

Worker status is not determined solely by contractual arrangements. It is the reality of the working relationship that is important, such as the employer's degree of control and the individual's autonomy, the extent of integration into the employer's business, and the mutual obligations between the parties.

For IT contractors, implementation of the Single Worker Status (SWS) policy, affecting how their relationships are regarded in law, will bring some benefits but also some possible drawbacks.

Benefits of Labour’s Single Worker Status

The most likely benefit for IT contractors of being considered ‘workers’ under Labour’s SWS plan is gaining the rights and protections of employees, such as holiday pay, sick pay, redundancy rights and protection from unfair dismissal.

This should provide greater security and benefits, notably for contractors who work with large organisations which, as standard, offer employees many valuable perks.

Under SWS, contractors could even also become eligible for statutory benefits such as family leave, and the right to request flexible working.

Drawbacks of Labour’s Single Worker Status

A major attraction of contracting as a self-employed consultant is flexibility for both sides.

But Labour’s Single Worker Status plan may impose more rigid structures akin to employment, reducing the autonomy contractors enjoy in terms of choosing projects and hours. And in turn, there’s a risk that the appeal of using contractors may reduce.

Any changes to status may indirectly affect how contractors engage with multiple clients simultaneously, with clients potentially imposing more restrictions given their potential for greater liabilities with HMRC. Contractors and their clients may, as a result, face increased administrative burdens in dealing with the legal complexities associated with managing the rights and obligations of external consultants.

History set to repeat itself?

Perhaps the biggest risk of Single Worker Status is that hiring organisations may reconsider their use of contractors if the costs, administrative burdens and potential liabilities increase, or look insurmountable.

We’ve seen that sort of averse reaction before, notably in the run-up to when the off-payroll working rules were introduced in the public sector on April 6th 20217 and in the private sector on April 6th 2021. Under SWS, nervy end-clients may shift towards agencies or seek alternative ways to manage workload peaks.

However Single Worker Status may have less impact on the treatment of tax under the existing IR35 legislation, which already effectively treats those who are not self-employed as being employed.

How Single Worker Status might affect IT contractors – example  

An IT contractor, Jan, provides services through their own limited company/Personal Service Company to multiple clients. Under the current arrangement, Jan enjoys the flexibility to choose their projects and hours.

Jan’s remuneration comes through dividends and a minimal salary, optimising tax liabilities.

From the client, Jan is not entitled to benefits like holiday or sick pay.

If Jan is subsequently found to have a relationship more akin to employment than self-employment with a client (and any PSC is to be ignored, as it is for tax purposes), then our contractor may be treated as that client's employee or worker.

Jan may then be entitled to employment rights and benefits offered by the client.

However, both the terms of the contracts and the reality of the ongoing relationship would be subject to greater scrutiny, possibly increasing administrative requirements and reducing flexibility (including the Jan's ability to work for other clients).

Summary of Single Worker Status – pending further details

If Labour’s Single Worker Status becomes government policy and is implemented, IT contractors could experience significant changes to their working arrangements.

While Labour’s policy-plan aims to provide clarity on worker status and ensure those who should have legal rights and protections have them, its perceived advantages must be offset against a potential loss of flexibility, higher tax liabilities and increased administrative burdens.

As the new government settles in, it is important for contractors and organisations using such external, independent consultants to stay informed about the Single Worker Status plan. We recommend both parties consider and factor-in all the potential impacts, even loosely, before the key criteria, definitions and/or conditions for Single Worker Status is invariably outlined in the coming weeks, potentially in conjunction with Labour’s pre-election promised review of employment status.