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How does the new dependent contractor status affect the IR35 legislation?

The Matthew Taylor report on flexible working

Dependent contractors!

Before now, the binary choice between working as a regular employee and a contractor is about to be more complex with the introduction of another option, dependent contractors.

The aim of this is to bridge the gap and retain the flexibility offered by contracting and at the same time, providing some benefits offered by regular employment.

This is contained in the review of “modern working practices” by Matthew Taylor of RSA.


The government should retain the current three-tier approach to employment status as it remains relevant in the modern labour market but rename as ‘dependent contractors’ the category of people who are eligible for worker rights but who are not employees. The Taylor Review

As there is lack of clarity of worker’s status, particularly what became obvious after the revised ir35 regulation where the tools provided by HMRC created more questions than provides answers and managers are even more confused on how to implement the result of the tool, consequently, every locum (temporary professional contractors) are blanketed under a PAYE scheme.

The review highlighted three core areas for improvement

  1. Primary legislation to define the boundary between self-employment and worker status

  2. Moving towards aligning the categories used in tax regulation and employment regulation,

  3. That the employment status boundary should be defined – as is the tax boundary – in terms of the level of control and supervision experienced by individuals

Parliament response to the IR35 petition was that tax is not tied to employment status, which made it possible to be taxed as a PAYE while working as a contractor with no benefits and protection of regular of a regular employment.


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Matthew Taylor chaired the review


Although bulk of this review focuses on what is term the as “gig workforce” or “gig economy” the types of flexible workforce used by companies such as Uber, Deliveroo and Pimlico, where there are clear “supervision” and “control” by these companies i.e. the staffs wear their uniform, they are in most cases unable to work for another company and control the schedule of the staffs on a daily basis but conveniently classed these staffs as “self-employed” or “contractors” and in majority of the cases, most of these contractors do not see themselves as self-employed but employees, as can be seen by the volume of legal cases mounted against these companies.

However, at the other end of the scale, the clarity been sort by this review will help other types of contractors who clearly wish to be classed as self-employed or contractors, such as Locum Doctors, Nurses, Radiographers, Physiotherapists and social workers etc. or IT specialists, who before now have been able to work efficiently as contractors, providing their services to public bodies such as the NHS, but are now forced to work as employees by the revised IR35 regulations, getting paid on PAYE terms through umbrella companies but lack any benefit of a regular employee.

These group of contractors have mounted some legal challenges and have so far been able to get NHSI to remove the blanketing of all contractors under the PAYE scheme, an instruction passed to every TRUST by NHSI in April 2017, when the new IR35 came into force.

To underline the complexity and lack of clarity in defining employment status, even though NHSI have now asked every TRUST, to conduct the ESI (employment status indicator) test for every contract, managers either do not know how to implement the result or are unclear what to do when there is disagreement on specific answer to a question on the indicator. Thus, almost every contractor that before April was legitimate self-employed contractors are all now swept under as employee with no employment rights.

One sided-flexibility:

The current working pattern only provides one-sided flexibility, various NHS departments are able to call on the flexible workforce provided by the Locums to fill gaps left by the lack of permanent staffs, long and short term sickness, holiday and maternity.

The Matthew Taylor report acknowledged that two-way flexibility is great, it can enable more people to work in the way they want when they want across their lifecycle but crucially also said one sided flexibility is when employers seek to transfer all risk on to the shoulders of workers in ways which make people more insecure and make their lives harder to manage.

At the moment, even though NHS hospitals that use these flexible workforces enjoy the benefits, all the risks are transferred to the contractors, as it remained the case that there are no benefits to the contractors.

The majority of Hospitals uses a third party “umbrella companies” to process payment, the umbrella companies are the “employer” this arrangement protects the public body from any employer responsibilities.

The review has its flaws, the renaming of a certain group of workers as “dependent contractors” may introduce even greater complexity. It is already difficult enough to determine someone’s status with the current system, adding to it is not likely going to provide the clarity it sort.

It is no doubt, a difficult balancing act, but the review seems to want to grab both ends of a sword at the same time, the desire to maintain flexibility and at the same time throw in some benefits.

Although the review call for enforcement, if government establishment (Public body) such as the NHS is not following the provision or guidelines provided by HMRC, even though these guidelines have their own flaws, how will a private firm that has more incentive to cut corners follow any recommendation?

In conclusion, the review brushed on so many facets of employment and modern way of engagement, but it still remained that the balance is skewed too much to the side of the employer, the review does not recommend any radical change and the workers it sort to protect may not actually notice any changes.

The review recommended the development of employment status indicator, there is already one produced by HMRC, employers, particularly NHS and other public bodies are not just honouring the outcome.

The creation of IR35 legislation that is causing dilemma and putting flexible working in the NHS under pressure was not addressed.

The almost compulsory use of an umbrella company without a choice was not addressed as well.

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