‘Contractor’ and ‘employee’ are outdated labels used in an evolving world of work where there are an increasing number of ways that organisations can get people to get things done without employing them.
This loss of employment is driven not solely by organisations seeking to reduce employment risk, although some businesses deliberately choose this strategy for those reasons. Increasingly, it is the highly skilled knowledge worker who is driving the nature of the engagement.
Writing in the Harvard Business Review, human resources academic Professor John Boudreau highlights that “Framing the choices as ‘independent contractors’ versus ‘regular full-time employees’ limits options.”
Most top and mid-tier contingent workers have chosen to schedule their work-life around their personal lives because they can. And it’s not only the contractors that benefit, with clients enjoying services on a more cost-effective and convenient basis, enabling them to move faster and gain competitive advantage.
Ultimately though, Boudreau maintains that contracting and employment are simply two different means to an end, which is to get a job done. With regards to specific duties the two carry out, there may be nothing inherently different. For example, an IT contractor can be engaged to carry out the same duties as an employed IT technician. In such an instance, the role is the same, as it is within many contracting roles.
The Government, and state organs such as the Treasury, HMRC and the Department for Business, Innovation and Skills (BIS), have yet to identify with what Boudreau calls “good work”, as opposed to “good jobs”.
Boudreau explains: “Replacing the idea of ‘good jobs’ with the idea of ‘good work’ doesn’t diminish the value and importance of regular full-time employment, but it places it in a context that acknowledges emerging work options — and it holds those new options to a higher standard, rather than simply dismissing them in favour of regular full-time employment.”
And rather than support flexibility in the workforce and its benefits, successive governments have punished contractors, freelancers, independent professionals and the self-employed.
For example, it seems unfathomable that, come next April, it is entirely possible that employees will be able to claim expenses on travel whilst contractors, who have to travel much further afield for work, may be restricted from doing so. But the travel and subsistence proposals to restrict tax relief on expenses are only the tip of the iceberg.
IR35 has been the scourge of contractors for a decade-and-a-half, providing unnecessary complications for those who actively opted against lifelong employment. Meanwhile, contractors and small family-owned businesses look set to bear the brunt of the Dividend Tax changes outlined in the Summer Budget.
Despite the broadening grey area that is employment status, the attitudes of policymakers remain stuck in the industrial age. But we are now in the knowledge economy where income is varied, and so should the way we are taxed be.
People don’t opt to contract because they want to avoid paying taxes, and it’s not their fault that their working arrangement doesn’t make their tax affairs as transparent to HMRC as an employee’s.
They choose to be contractors because they enjoy the flexibility and challenge that comes with it, even if they have to cope with numerous disadvantages such as a lack of employment benefits, no holiday or sick pay, and the risk of not acquiring work.
The Office of Tax Simplification (OTS) may well be facing an impossible task in attempting to simplify the UK tax system. The employment status dilemma is becoming increasingly complex as more people opt for flexible work routines.
With the nature of work expanding into increasingly varied territory, it is no longer sufficient to attempt to categorise the employment status of each individual. Similarly, imposing the same tax legislation upon everyone within the contractor workforce assumes that every worker shares the same circumstance, which couldn’t be further from the truth. Ultimately, somebody’s going to be left short.
It is this naïve, broad brush approach which is failing to accommodate the complexities of the modern workforce and which is failing so many contractors. We need to stop pigeon-holing workers. There needs to be more emphasis based on circumstance and less on specific job titles.
The first step to doing so is to stop framing the debate around contractors and employees and to recognise individuals for the work they do instead.