All change for staffing and platform worker arrangements in the UK – new consultations, announcements and likely manifesto commitments

The next 12 to 18 months seem likely to involve what may be the biggest changes to the UK staffing and platform worker landscape since Michael Heseltine ended the old UK recruitment licensing regime 30 years ago. Users and suppliers of contract workers and gig workers are already beginning to work out how the Labour Party plans might affect them, and Wednesday's Budget announcement and some related developments add other things to the mix.

Budget announcements affecting staffing and gig economy arrangements, and umbrellas

The differential between employed and self-employed national insurance contributions (NICs) rates has been retained, meaning that self-employed arrangements will continue to be financially attractive for some (provided tax avoidance measures like IR35, the managed service company regime (MSC) and the agency worker regime can be handled).

It is thought that the government would like to abolish employee NICs altogether in the long term, a pledge likely to be central to the Conservative Party's general election pitch. But that would appear to involve retaining employers' NICs which would of course preserve the tax advantages of being self-employed, and so this key feature of the UK tax system would, under a Conservative government, continue to push some people into self-employment models.

There will be an announcement on 18 April about any new legislative regime relating to umbrella companies. This Insight sets out our view of what the options are for regulating use of umbrellas. We still think that some sort of supply chain liability will be introduced, with users and/or staffing companies who use "dodgy" umbrellas (i.e the section of the umbrella industry which engages workers via aggressive tax avoidance schemes and worse) becoming liable for the tax non-compliance in their supply chain. For criminal behaviour, the Criminal Finances Act already applies.

18 April will also see the start of an important consultation about the VAT status of private hire taxi services, following a taxi regulatory case last year (Uber  v Sefton Borough Council). That will be interesting, in potentially showing how certain types of personal service via a gig economy platform intermediary may be exempted from VAT.

Further developments in Labour plans

As covered in our Insight last month, the likely next UK government (according to current polling data) will be a Labour one. It plans, within 100 days of an election victory, to introduce a bill giving day-one rights to all workers, abolishing zero-hour contracts (which is the form of contract mainly used in staffing arrangements) and eradicating "bogus" self-employment. Given predictions about a May or October election this, or some of this, may be law, or very imminent, within 12 months. That gives users, staffing companies and gig economy platforms very little time to substantially change their commercial models to cater with the new regulatory environment.

Recent suggestions are that some of these plans may be watered down – with the main focus being on changes of law to attack "exploitative" zero-hour arrangements rather than a blanket approach which might otherwise have serious adverse effects on UK labour market flexibility.

It is also less likely that a new government will be able to just  "borrow" a self-employment test from the EU, following the failure last month of the EU to agree at ministerial level the text of the Platform Workers Directive (PWD) (a key pillar of which was a new statutory definition of "self-employment"). As a result, unless there is a last minute deal agreeing sensible wording for the PWD, any UK measures are likely to require more consultation than expected, which will push back the effective date for any change.

There will also be a clear move by any new Labour government to beef up the powers and resources of various regulators and enforcement bodies, with the establishment of super-regulators. It seems likely that the long-expected merger of the Employment Agency Standards Inspectorate (EASI), Gangmasters and Labour Abuse Authority (GLAA) and the HMRC national minimum wage (NMW) unit will happen, allowing more joined-up action against exploitation of more vulnerable workers.

Other developments

HMRC is clearly stepping up activity in relation to IR35 compliance. It has until this time next year to raise assessments relating to the first year of the new IR35 regime and will currently be doing a lot of preparatory work relating to claims it will hope to make against major users and suppliers of personal service companies.

Users and suppliers need to double-check that their IR35 checks are in good order and that they have not, over the last few years, allowed use of gross payment arrangements for contractors who are really integrated into their workforce or otherwise not genuinely self-employed.

In addition there are continuing signs that HMRC is looking at whether the (misleadingly named) "agency worker" tax regime in sections 44-47 of the Income Tax (Earnings and Pensions) Act 2003 applies to a wide range of service and supply arrangements well beyond traditional staffing. This creates a different angle for attack for HMRC than IR35 to use against self-employment arrangements. The latest updated guidance from HMRC this week emphasises that, in their view at least, it can apply in any intermediary situation where personal services of an individual are supplied via a third party to an end client.

The government is also looking to make "class actions" by groups such as low-paid workers easier, with new legislation allowing so-called litigation-funding. So when all of the new laws relating to zero-hours workers and gig working come into effect, we can expect to see a growing industry of well-funded claims firms advertising for claimants to represent against major organisations, gig platforms and staffing companies.

The AI challenge

And as if the above were not enough, all organisations are facing the challenge of whether and how to use artificial intelligence and how to work out what will and will not be legal and safe, and what new AI usages will and will not be commercially essential to stay competitive.

The EU AI Act is likely to have a major impact even on UK operators and there will be serious penalties for those who do not get adoption right, just as there will be serious consequences for those businesses (perhaps in higher volume areas) who fail to get their strategy for competitiveness via AI right.

Impact on investment in the sector

The next 12 to 18 months may be a very busy period for suppliers and users of contract workers and gig workers, in terms of needing to make substantial changes to contract models and operating systems. Owners of businesses which are most likely to be affected might be wise to start identifying what their options might be and where the risks will lie.

It seems that, unfortunately, these changes will hit the market just as many staffing companies and gig economy platforms look to attract new investors, with many founders and private equity investors looking to be bought out. There will be a lot of pent-up demand for deals once the current downturn ends, which many have been forecasting for later this year and next. It will be particularly crucial for those in that situation to have prepared for the changes.

Sophisticated prospective investors will be very aware of the legislative and enforcement developments mentioned in this Insight and will want to see plans that promise sustainable future profitability with low compliance risk. We are already working with companies to start mapping out likely future commercial models and recommend that all affected organisations start building action plans soon.

If you would like to discuss any of the issues raised in this Insight, please get in touch with your usual Osborne Clarke contact or one of the experts listed below.