Self-employed or employee? Britain wrestles with the gig economy

NO MATTER that Theresa May lacks a parliamentary majority, that many in her party want her gone, or that her approval ratings are on the floor. Like the Black Knight in “Monty Python and the Holy Grail”, who has had all his limbs chopped off by King Arthur, Mrs May is determined to carry on as normal. The prime minister is “convinced”, as she said on July 11th, “that the path that I set out in my first speech outside Number 10…remains the right one.”

She was speaking at the launch of a much-anticipated review of modern working practices by Matthew Taylor, a former adviser to Tony Blair. Mrs May had commissioned the report last year, soon after promising in her maiden speech as prime minister to improve the lot of “ordinary working-class” families.

At first glance, it may be hard to see why anyone should worry about Britain’s labour market. Unemployment is at a 40-year low of 4.5%. Whereas in parts of Europe more than 40% of young people are jobless, in Britain less than 15% are. Yet dissatisfaction reigns. Recent years have seen insecure work grow rapidly. Self-employment is at its highest ever. Though the “gig economy”, including Uber drivers and Deliveroo cyclists, remains small, it is mushrooming. Such workers miss out on perks enjoyed by employees, such as sick pay and parental leave. Many earn what amounts to less than the hourly minimum wage of £7.50 ($9.65).

The review proposes to smooth the roughest edges of the labour market. Firms have an incentive to classify employees as self-employed, since doing so allows them to avoid paying national-insurance contributions. (Workers may be happy with the deal if it allows them to negotiate a higher wage.) Mr Taylor recommends harmonising the tax regimes for employed and self-employed folk. Yet the government, stung by a furore over this question following the budget in March, has in effect already ruled out such a change.

Other proposals in the review may well see the light of day. It recommends a higher minimum wage for hours that are not guaranteed in a contract. Britain’s 1m workers on “zero-hours” contracts, who have no guaranteed hours, look set to benefit. The proposal looks similar to the arrangement in Australia, where many casual employees are supposed to be paid 125% of the hourly rate of a full-time employee, says Jeremias Prassl of Oxford University. By making it relatively cheaper for employers to have a permanent workforce, says Mr Prassl, the policy may deter them from taking on only casual staff.

The most eagerly awaited bit of Mr Taylor’s review concerns the regulation of the gig economy. Wonks across the world are thinking about how to help those who work for firms such as TaskRabbit and PeoplePerHour. The review suggests extending minimum-wage legislation to such people. They could be compensated according to the number of tasks performed. Platforms would need to ensure, perhaps through analysis of their own data, that an average individual, working averagely hard, would earn at least the minimum wage. A version of this arrangement already exists for firms that pay their employees a “piece rate”—for instance, for each shoe they stitch.

Innovative ideas such as these are welcome, yet a simpler approach could do more for Britain’s gig-economy workers. Under employment law, people are classified as employed, self-employed or as “workers”. Those in the latter category (to whom Mr Taylor suggests giving the spicier title of “dependent contractors”) occupy a middle ground of sorts, in a less formal relationship than employees with their paymasters, though without much flexibility over when or where they work. They are entitled to the minimum wage and various other benefits.

In October an employment tribunal ruled that Uber drivers were workers, rather than self-employed, and were thus entitled to the minimum wage (an appeal is expected to be heard in September). Yet employment law is often poorly enforced. The arm of the tax-collecting agency that deals with such things has long been underfunded. Access to employment tribunals, the main mechanism for enforcing individual employment rights, has been restricted since 2013, when charges of up to £1,200 were introduced for claimants.

In short, many of Britain’s labour-market problems could be solved simply by enforcing existing law more zealously. Abolishing employment-tribunal fees would be a step forward, as would beefing up the tax office. Yet the review tiptoes around these issues. If Mrs May is serious about improving the lot of workers she will have to be bolder.