What is a ‘Dependent Contractor’?

The newly published ‘Taylor Review’ has recommended a new employment status, the ‘Dependent Contractor’. But what does that mean exactly and are you a ‘Dependent Contractor’? We explain all in this blog.

What is a ‘Dependent Contractor’?

Essentially a dependent contractor is a person whose employment status is deemed to fall between employed and self employed. Currently the government calls anyone who falls between the realms of ‘employed and ‘self employed’ a ‘worker’ – but this is a terrible definition as it provides no information about what that individual actually does for work. The Taylor review seems to be taking a stab at clarifying the ‘worker’ category by introducing the ‘dependent contractor’ term.

Typically, a ‘dependent contractor’ is a person who works for just one client but is not employed by that client, they are only engaged in a contract with them.

Am I a dependent contractor?

If you consider yourself a ‘gig worker’, then you may be a dependent contractor. Dependent contractors are paid per task and not per contract or hours of work performed. The recent boom in apps like Uber and Deliveroo has created the demand for this new type of worker, who essentially had few working rights until now. But it’s not only going to affect people who work for apps and websites, think about those who work for agencies, work on zero-hour contracts or even agricultural workers.

There are an estimated 1.1 million people in the UK who would currently qualify as a ‘dependent contractor’ if the recommendation were to pass in parliament.

Why is the Dependant Contractor type necessary?

Recent court rulings against companies like Uber and Deliveroo are evidence that all is not well with the way these gig-economy jobs support workers. For example, workers may be required to wear a uniform but do not receive holiday pay, sick pay, insurance or even national minimum wage. So all the risk is on the worker, but they behave more like an employee.

And if gig work is slow for any reason, these workers may receive far less than the national minimum wage. The new worker type would require companies to ensure the minimum wage is provided along with basic working rights.

Of course, if you’re a highly paid IT or business contractor, you are in a very different situation to your typical ‘gig worker’ but may be considered a dependent contractor. While this change could provide these workers with more benefits – the big question is – do they really want the benefits in exchange for higher tax and NI?

Are Contractors and Freelancers ‘Dependant Contractors’

Those who are self employed and work on contracts or for hourly rates are unlikely to be affected by this potential change. Especially if you work for a number of different clients at a time.

What is not yet clear is if contractors providing services via a limited company will be affected, we will provide an update if/when this passes in Parliament.

What tax will ‘Dependent Contractors pay?

Here’s where things are still a little unclear. We understand the tax that must be paid by employed staff and self employed workers. What is not clear yet is what tax the newly proposed ‘Dependent Contractors’ should pay. It’s likely that changes to the tax system will be necessary to accommodate for this new type of worker, and this may become clearer once decisions are made on which rights should be afforded to dependent contractors.

So is this a good or bad change for contractors?

It’s unclear yet. Firstly the bill has to pass in parliament, then the finer details should emerge that will allow us to answer this question.

It’s likely, that if it passes and higher earning contractors are re-classified as ‘dependent contractors’, that they will end up paying a higher rate of tax and NI. However if working benefits are included, that could be the silver lining for many contractors. The change is likely to have the biggest effect for gig-workers, who’s employment situation is quite different from the typical contractor working through a limited company.

We’ll keep you updated on these potential changes via this blog, our newsletter (you can sign up below) and on our social media channels.

Read more about the Taylor Review and download the full report here.