Not so Uber good: Employment and tax issues arising from the recent Uber decision
In the latest UK200Group blog, Victoria Pratley, Legal Services Partner, from UK200Group member firm Price Bailey, examines the employment and tax issues arising from the recent Uber decision.
The much awaited decision surrounding the Uber drivers’ challenge over their employment status was announced on 28 October 2016 and it was not so good for Uber!
The Employment Tribunal ruled that two drivers who provide services to Uber are ‘workers’ within the meaning of the Employment Rights Act 1996.
This means they will be entitled to a limited number of employment rights (but not those accruing to ‘employees’). As workers they will be entitled to:
• 5.6 weeks’ paid annual leave each year
• A maximum 48 hour average working week, and rest breaks
• The national minimum wage (and the national living wage)
• Protection of the whistle-blowing legislation
As they are not employees, they will not be entitled to:
• The ability to claim unfair dismissal
• The right to a statutory redundancy payment
• The benefit of the implied term of trust and confidence
• The protection of TUPE, if Uber sells its business
It is highly likely that the case will be appealed and Uber have already indicated their intention to do so. Although this decision is fact-specific, it increases the chance of other ‘gig economy’ companies facing claims by self-employed contractors challenging their worker status.
It sounds like a new brand of mascara but instead it represents the beginning of the backlash from Uber. This week has seen Deliveroo being threatened with legal action by the Independent Workers Union of Great Britain (IWGB) unless Deliveroo provide their riders with Union recognition and employment rights.
Currently, Deliveroo’s drivers are self-employed and are not afforded employment rights such as paid leave, sick pay, and the national minimum wage. However, as a result of the recent decision in the Uber case, the Union has vowed to commence proceedings against the company if it fails to change the status of its drivers.
For businesses who think they may be affected by the decision in the Uber case in particular relating to the way they engage with their workforce, they will also need to consider the tax implications. The obvious one being whether PAYE and NIC needs be operated on payments to individuals. This will depend upon whether or not the individuals are classified as employees for tax purposes. This is where employment and tax law deviate. It may seem bizarre, but a person may be classified as a ‘worker’ from an employment law perspective and gain certain employment rights, but will continue to be regarded as self-employed for tax purposes. If they’re not an ‘employee’ they are self-employed for tax purposes and so deal with their own tax affairs. The rules in legislation and tax case law are quite involved in determining the classification of an individual as employed or self-employed.
However, businesses should be alert to those individuals classified as a ‘worker’ from an employment law perspective, as their employment status will require more careful consideration for tax purposes. The less obvious issue is VAT. In the Uber case if it is acting as principal, Uber faces a VAT bill. If Uber is acting as agent, the VAT liability rests with the drivers. The principal v agent analysis for VAT purposes is complicated with a lot of case law around it. The key point being if you engage people in your business who are regarded as ‘workers’ for employment law you need to be carefully considering (and managing) the risk not to be regarded as principal for VAT purposes. Simplistically at a VAT rate of 20% it puts 1/6th of income at risk having to be paid away as VAT.
It’s important that companies functioning in the ‘gig economy’ get the right balance between the freedom to offer flexible services and denying individuals workplace protections.
This post was written by Price Bailey Legal Services
Partner Victoria Pratley. To find out more information on the topic above get in touch with Victoria at firstname.lastname@example.org.
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