A “third-way” employment status could save the gig economy

As anyone following the news over the past week will know, food delivery start-up Deliveroo has been involved in a heated battle with its “employees” over a new compensation deal introduced by the company. Under the proposed arrangement, Deliveroo drivers would have had their hourly rate replaced by a fee paid per delivery. While the company argued that this would enable drivers to make more money per hour than would be possible under a fixed wage, drivers rebelled against the increased instability of income and lack of pay for time spent waiting between orders. Deliveroo caved in after a barrage of negative media coverage and a public reprimanding from the Department for Business, Energy & Industrial Strategy, with the firm’s CEO William Shu apologising and offering drivers the choice between an hourly or per delivery rate.

The Deliveroo affair follows on the heels of several similar scandals, with Uber, Addison Lee and courier service Hermes all receiving negative press – and in some cases being taken to court by their workers – over the past several months. While specific details vary, all revolve around the legitimacy of workers being classed as self-employed contractors rather than employees, with the different tax obligations and employee entitlements this implies. While the firms involved argue that their workers are freely contracted agents who appreciate the flexibility and earn decent money, some disgruntled workers claim they are working like full-time employees but being denied employee status – all so that their employers can reduce their national insurance contributions and deny them benefits and the minimum wage.

The truth, as always, lies somewhere in between. While instances certainly exist of companies falsely classing their workers as self-employed to reduce costs – a phenomenon known as “bogus self-employment” – in many cases both the company and the worker value the flexibility and hands-off relationship that comes with self-employed status. However, problems are arising because some employers dependent on self-employed labour are using their workers in a way that closely resembles formal employment. Just think of the parcel couriers, Deliveroo cyclists and Uber drivers who have no say in determining the pricing of their labour or the regulations and procedures surrounding their work. Furthermore, many work hours equal to if not greater than those of full-time employees, and – despite this not being a condition of genuinely self-employed labour – are obliged to work a minimum amount.

This lack of clarity and mismatched expectations around employment status are creating uncertainty among both businesses and workers in the gig economy. The former argue that the freedom of their staff to choose their own hours precludes them access to employee benefits, while the latter claim they are subject to restrictions and conditions that make them employees rather than genuinely self-employed contractors.

This uncertainty is undesirable for several reasons. It is bad for self-employed workers, who are unsure of where they stand and (some of whom) are left feeling exploited. It is bad for companies – both established firms and start-ups alike – that rely on self-employed workers and have to worry about being penalised by HMRC for false categorisation and/or being taken to court by their workers – with all the undesirable press that entails. Some companies might even feel pressured to knowingly hire the “bogus self-employed” if that is the only way to keep up with unscrupulous competitors. But above all, the lack of clarity is bad for the meaning of self-employment itself, which has begun to lose the entrepreneurial connotations it deserves and is instead increasingly seen as a byword for worker insecurity and corporate cost-cutting.

This suggests that we need to update our way of looking at employment to move beyond the “employed/self-employed” dichotomy. Having a third form of employment status somewhere in between would enable us to acknowledge the less formal relationship some workers have with their employers, without pretending they are just as free as the genuinely self-employed. Such a status could provide workers in the “gig economy” with additional benefits and protections, without fundamentally undermining the flexible business model that entrepreneurs in the sector depend on. Indeed, as Deliveroo’s own Mr. Shu pointed out in a recent interview, the changing workplace means “there are laws drawn up years ago that may be less relevant for today’s economy.”

This third way approach has gained some traction lately, with a 2015 Office of Tax Simplification Employment Status report discussing it as a possible way forward. Some have suggested that the UK already has a third status – that of the “worker”, which grants some employee benefits, such as the minimum wage and sick pay, but not all – that could be the solution. As it turns out, the British Uber drivers currently taking their employer before a tribunal are seeking worker – rather than employee – status. Aside from a third employment status, the OTS report also explores a variety of alternative solutions, such as a “statutory employment test” to reduce uncertainty and a “de minimis” amount of work (in terms of time and/or income) above which a person would automatically gain employee status.

Whatever the answer, it is clear that an update to employment law is needed, so that self-employment continues to be seen as the free and entrepreneurial choice that is is, rather than the product of necessity and coercion.