Time to Review Employment Contracts?
Major changes to employment status are imminent. It is time to review contracts and assess business position in terms of employment law.
In the requirement to review employment contracts for all, we have reached the next stage in plans for the major shake-up of employment law, which began with the Taylor Review of Modern Working Practices- a review requested by the Prime Minister as a reaction, in part, to the growth of the UK’s gig economy.
The gig economy is a colloquial phrase defining a labour market which in recent years has been characterised by the increase and prevalence of short-term contracts, freelance work, outsourced or non-contracted work. The gig economy provides polar opposite outputs depending upon your viewpoint; employment that offers flexibility with regard to employment hours, or employee exploitation with no or little workplace protection. Whatever your point of view, the gig economy is substantial and growing; It is estimated that there are over 5 million people who are employed in this capacity, where rather than receiving the wage and benefits of an ‘employee’ they are paid for the ‘gigs’ they perform- such as a delivery, a shift or a project.
4.8 Million self-employed individuals are likely to be affected
Ten months after Mathew Taylor published his report into modern work, the government are beginning to act on the findings. The time taken to respond has meant that the thoughts have been gathered, comprehensive and offer significant reforms to employment law as opposed to what could have been knee-jerk reactions to a report which found gross injustice for the lowest paid workers in our communities. With over 4.8 million self-employed individuals likely to be in some way affected by the changes, a sober, considered response should be celebrated.
It is prudent, in the present climate, to assess the robustness of employment contracts and to ensure that they reflect the roles and job descriptions of employees accurately, through a review process by business owners, directors or HR Managers.
In an ideal world, all contracts, job descriptions, terms and conditions should be reviewed during the recruitment process as a position is advertised and filled. Decisions about the capabilities of an individual and the types of work to be completed can then be decided by the organisation in advance of the individual started in post, thus mitigating the chance of friction in the future; correctly matching applicant to appropriate job role.
The exclusion of Employment Tribunal fees and case law brought against high profile companies such as Uber and City Sprint, as well as the changing landscape around employment status, have increased the likelihood of employment disputes. In addition, the culture of blame vrs claim which engulfs much of the engagement with social disagreement has charged many psyches with a need to attribute blame and look for compensation.
That said, when we talk of employment rights, some of the findings of The Taylor Review brought to light utterly atrocious situations for many of those in the lowest paid positions in the UK.
The Economic Reality Test
When it comes to checking and reviewing the contracts of existing employees, it is vital that workers are correctly classified. One of the most robust forms of validation is the use of the economic reality test which assesses employment status through six factors:
- Is the work integral to the business?
- What is the permanency of the worker’s relationship with the company?
- What level of investment have the worker and employer made in tools and equipment for the worker to carry out the tasks of their role?
- How much control over work, hours, projects and contract does the worker have?
- What is the worker’s opportunity for profit and loss?
- What skill level is required to carry out the required role?
Risk assessing your employment contracts and the type of work each type of employee or worker undertakes is important but should be handled with extreme care. Conducting a full audit of the workforce by companies who believe that their existing practices may fall short of requirements as the landscape changes, will enable gap analyses and thus action plans to be developed once any discrepancies are highlighted. Ignoring the issue really isn’t an option.
Although assessment is likely to be a costly process for many businesses, the benefits far outstrip the risks or costs. Potential Tribunals, settlement agreements, penalties from the HMRC and closer to home, the workforce voting with their feet, pose far greater potential losses than the cost of risk assessing contracts.
If your business requires support through the risk assessment and review of your employment contracts, terms and conditions, or for any other aspects of employment law, in the first instance, please contact Vaishali Thakerar at our Leicester office on 0116 212 1000 or by email to vthakerar@lawson-west.co.uk.
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