Compliance and the Gig Economy

The gig economy is expanding every day, providing a great solution for growing businesses who need to stay agile with their workforce. But as Uber’s recent London setback has shown, the gig economy raises new challenges and legal grey areas too. Here, DUA explore the important tax and regulatory issues businesses should be aware of when using a fluid workforce.

What is the gig economy?

The gig economy refers to the burgeoning section of the labour market characterised by short-term and freelance work. Instead of regular, contracted hours paid at a standard rate, workers are classed as independent contractors and paid for individual ‘gigs’ – food and parcel deliveries and car journeys, for example. Although several of the most famous names operating in the gig economy, including Uber and Deliveroo, are app-based platforms, this is not true of all gig employers – the courier service Hermes, for example, employ their drivers on a delivery-by-delivery basis.

Earlier this year it was estimated that five million people find their employment within the gig economy. While some have championed it for its flexibility, others have argued for further regulation, especially in the wake of TfL’s decision to strip Uber of its licence to operate in London.

Clarifying the grey areas

Despite its rapid growth, there are certain areas of the gig economy which remain either misunderstood, or open to contention. Following a number of high profile court rulings, the government commissioned the Taylor Review, the results of which were published earlier this year. It highlighted the following areas:

Employment regulation – One major dispute within the gig economy has been whether employees are classed as workers or independent contractors. While many are happy with the flexibility of being a contractor, others are unhappy with the lack of employment rights and protections this affords them compared to being a worker.

Last year, Uber drivers won their right to be classed as workers, while in February of this year London firm Pimlico Plumbers lost their appeal against a previous ruling that a long-serving plumber was a worker, not an independent contractor.

The Taylor Review has suggested bridging this divide with a new category of worker – the dependent contractor. This would apply to all staff under supervision and control, entitling them to basic employment rights including sick and holiday pay and protection against unfair dismissal.

Tax implications – The Taylor Review also made several suggestions regarding employment tax. In particular it drew attention to the ‘hidden economy’ of cash-in-hand payments that makes up 18% of the total tax gap. Taylor instead suggested that these payments should be made via trackable means such as credit cards or PayPal.

Another tax implication raised by the report is that, currently, employees and the self-employed can be taxed different amounts for performing the same tasks. Under Taylor’s recommendations, it would not possible to classify dependent contractors as self-employed, aligning their tax liabilities with those of employees.

Although Taylor’s report has so far failed to inform any active legislation, the recent developments regarding Uber have pushed the regulation of the gig economy back into the limelight. It remains to be seen if further action is taken, but businesses operating in this field should be aware of the areas which may be subject to change.

For many companies, the gig economy remains uncharted waters. It is therefore important to make sure that you have the right expertise and guidance on hand to ensure that you remain compliant while maximising your success. From tax planning to business strategy, DUA’s team of experienced accountants in Watford and London are on hand to support and guide your business throughout its growth.

Get in touch today to find out more about how we can help your business make its mark in unfamiliar territories.