Employment status reform: what could change?

The government has published its long-awaited consultation on employment status reform. Rather than fundamentally replacing the existing system, the consultation is primarily aimed at tackling what the government describes as “bogus self-employment” where individuals are treated as self-employed despite the reality of the working relationship pointing towards worker status.

Where are we now? 

For employment rights purposes, there are currently three main types of employment status: 

1. Employees have the widest range of employment rights.
2. Workers sit between employees and the self-employed. They do not have all the rights of an employee but benefit from important protections, including the National Minimum Wage and paid holiday.
3. Self-employed individuals generally have significantly fewer employment rights and greater flexibility over how they provide their services.

The label given to someone in their contract is not decisive. Their status depends on the reality of the working relationship, taking into account the contractual arrangements and how the relationship operates in practice.

The government believes the current framework can leave some people wrongly treated as self-employed and without employment rights to which they should be entitled. A particular concern is the use of broad substitution clauses, which allow another person to perform the work, as evidence that someone is genuinely self-employed.

So, what could change? 

The consultation proposes targeted reforms to the framework around employment status rather than a complete overhaul:

• The three-status framework stays, for now. Employees, workers and the self-employed will remain separate categories. The government will, however, continue to consider as a single worker status a longer-term goal. 
• Worker status could become easier to establish. The government proposes giving less weight to whether an individual is personally required to carry out the work, and greater weight to other features of the working relationship, including the level of control exercised over them. 
• Worker status could be presumed. Where an Employment Tribunal claim has been made, burden could shift so that a business would have to demonstrate that an individual is genuinely self-employed, rather than the individual having to establish that they have worker status. The government is also proposing to introduce additional penalties in successful tribunal claims where a particular business or organisation has been found to have repeatedly misclassified their workforce.
• Enforcement could be strengthened. The government is considering the role that the new Fair Work Agency could play in tackling incorrect classification of individuals as self-employed, for example by bringing claims on behalf of groups of individuals within an organisation to clarify their employment status.
• The genuinely self-employed could gain new protections. This could include a right to receive basic information about their engagement in writing, as well as the extension of certain health and safety and blacklisting protections. The government is also consulting on whether the self-employed should be entitled to a wider range of specific protections. 

What does this mean for employers?

These proposals are more limited than a complete redesign of employment status but they could still have significant consequences for organisations with contractor, freelance or other contingent workforces. If implemented, businesses may find it more difficult to establish that an individual is genuinely self-employed simply because their contract contains a right of substitution. Instead, the overall reality of the arrangement, including how much control the business exercises, is likely to become more important.

For now, we recommend that employers look beyond the contract. Where self-employed individuals are regularly engaged, it is worth considering whether those arrangements operate in practice in the way the paperwork suggests, particularly where individuals are subject to significant direction or control.

The consultation closes on 8 January 2027.