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Implications of the new ‘Gig Economy’

    In recent years, there has been a shift away from traditional 9-5 working hours with self-employed workers now making up 15% of the workforce and over 900,000 people working under zero-hours contracts. This rise in the ‘gig’ economy, defined as a ‘labour market characterised by the prevalence of short-term contracts or freelance work’, has been significant in keeping employment rates at a record high and brings with it and has benefitted the UK labour market in many ways. Zero-hours contracts are a vital part of the UK’s flexible labour market, and offer both businesses and their employees ‘an important degree of flexibility’. For many parts of the population, notably students, people with young children, and elderly workers, zero-hours contracts are a favourable means of employment, with two-thirds of people employed under such contracts happy with their employment terms.  However, these new business models also bring with them a variety of implications.

    According to Living on the Edge, a report published by the Trades Union Congress (TUC), 1 in 10 UK workers are now in precarious jobs, with those employed under zero-hours contracts now earning a third less than average employees. However, current employment legislation has not yet been adapted to fit these modern employment practices, and the rights of workers operating under these short-term or zero-hours contracts are relatively unprotected. TUC General Secretary, Frances O’Grady, stressed her concerns over this gap in legislation, arguing that “gig economy workers face the double hit of poverty wages and weaker employment rights”. Although the vast majority of workers have admitted that they are happy with their employment terms, issues arise when firms force employees to work under zero-hours contracts or register as being self-employed. As the reliance of society on companies such as Uber, Deliveroo and Airbnb continues to rise, a tightening of employment legislation proves all the more crucial. Most recently, a tribunal set to take place in May 2017 to determine the employment status of Deliveroo drivers emphasises the need for updated employment rights in the gig economy. Amid the controversy that surrounds the increase in ‘online labour’, the Prime Minister has commissioned Matthew Taylor to conduct a review of modern employment practices in a bid to assess their relevance with these new business models             

    Under current employment legislation, full employment rights are only reserved for those classified as an ‘employee’, defined as ‘an individual who has entered into or works under...a contract of employment’. Rights such as statutory sick pay, maternity pay and paternity pay are not automatically awarded to those defined as a ‘worker’, with the rights of self-employed contractors even less protected. Matthew Taylor’s review on modern employment practices aims to address whether a change in the definition of employment status is required to ensure the balance of rights and responsibilities. By defining workers as self-employed contractors rather than employees, companies have been able employ cheap labour without the need to comply with basic employment rights. Jason Moyer Lee, General Secretary for the Independent Workers Union of Great Britain (IWGB), emphasised the importance of this employment review: “For years employers in the so-called gig economy have been able to get away with unlawfully depriving their workers of employment rights to which they are legally entitled”. Taylor stated that one the aims of the review was to “define where we think the border line should lie between worker status and self-employed status so that businesses can build their business model around a reasonably clear account of what you have to do if you want people to be genuinely self-employed”. The ability of firms to force workers to define themselves as self-employed, coupled with the increase in zero-hours contracts has the potential to impact the ‘health of British firms’. By the end of 2016, there was a record high of 910,000 people operating under zero-hours contracts, with The Resolution Foundation emphasising that “lower earnings and a failure to get the hours you want hardly sounds like the widespread use of ZHCs is a key ingredient in the recipe for a well-motivated workforce”. A re-evaluation of current employment legislation would therefore be welcomed to ensure that the flexible labour market continues to thrive in the UK, and that those employed within it have their rights protected. 

    The rise in the number of people employed in the gig economy also has far-reaching implications for the Government. Workers that are defined as self-employed not only pay a lower percentage of their income in tax, but also pay lower levels of national insurance, amounting to £1,240 per self-employed person per year. Data published by the Resolution Foundation suggests that rising levels of self-employment will cost the taxpayer more than £6 billion per year by 2020 in National Insurance Contributions. The relative tax advantages that accompany self-employment could be an important factor in the growth of the gig economy, with recent tribunals regarding the classification of Uber drivers drawing further attention to the implications of current employment laws. Maria Ludkin, legal director at the GMB union, has argued that the ability of Uber to define their drivers as self-employed ‘has allowed unscrupulous employers to avoid employment rights, sick pay and minimum wage for their staff and [cost] the Government millions in lost tax revenue’. If Uber drivers are ruled as employees, tax specialists have calculated that Uber could be charged £13 million per month for National Insurance Contributions amounting to £156 million a year. A report by the Institute for Fiscal Studies stressed that firms already have many incentives to employ workers as self-employed contractors, such as holiday pay, minimum wage and pension contributions, and that ‘the tax system just exacerbates those incentives’. Taylor’s review on modern employment practices should aim to address this aspect of new business models as the exploitation of tax benefits by larger companies has the potential to threaten the stability of the UK’s flexible labour market.

    The increased prominence of the gig economy, coupled with a rise in self-employment, has gone a long way in reducing unemployment levels. Of the 2.2 million new jobs that have been generated since the 2008 financial crisis, 40% fall into the self-employed category, according to the Office for National Statistics, with official figures released on 12th April 2017 demonstrating that the employment rate remains at a record high of 74.6%. It is important to keep the UK’s flexible labour market, albeit while being careful not to emulate the French labour model that has given individual companies more power in terms of labour laws. The Government’s review must re-evaluate and tighten up current definitions of employment status with the intention of protecting the 3.2 million UK workers that are employed in the flexible labour market, and stop the exploitation of workers by large firms taking advantage of the tax benefits that accompany current employment legislation. 

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