Employment Status Reform: What Employers Using Contractors Should Know
On 14 October 2026 the government published its long-awaited consultation, "Make Work Pay: employment status reform and protections for the self-employed". It closes on 8 January 2027. If your business uses freelancers, subcontractors, couriers or other self-employed people, it's worth understanding where this is heading, even though nothing changes yet.
What the consultation does (and doesn't) propose
The headline is what has been dropped. The earlier plan to replace the current categories with a single worker status is now described as a longer-term goal. For employment law, the three categories stay: employees, workers and the genuinely self-employed. For tax, nothing changes: you are either employed or self-employed.
What could change is where the line falls between a "worker" and someone who is self-employed. Workers are entitled to the National Minimum Wage, paid holiday and some other protections, so that line matters to any business paying people on invoice.
The main proposals for employers
Less weight on substitution clauses. A right to send a substitute would no longer automatically mean someone isn't a worker. The government's preferred approach puts more emphasis on direction and control.
Who sets the pay. Whether someone can set or negotiate their own rates could become a key factor in deciding their status.
A presumption of worker status. At an employment tribunal, the business would have to prove someone is not a worker, rather than the individual proving that they are. This would not apply to employee status.
Penalties for repeat misclassification. Continuing to deny worker status after a tribunal has ruled on colleagues in similar roles could be an aggravating factor, with an additional penalty currently ranging from £100 to £20,000 per claim.
Fair Work Agency claims. The agency, which began operating in April 2026, could bring tribunal proceedings where it suspects bogus self-employment.
Written terms for the self-employed. Businesses may have to give self-employed people a written statement of key terms (scope of work, duration, payment and termination), possibly only above a contract value or duration threshold.
An online status tool. A non-binding checker for employment rights, similar in idea to HMRC's CEST tool for tax.
What about tax and IR35?
Tax is out of scope. The consultation covers employment rights only, and changing the definition of a worker would not automatically change IR35, the off-payroll working rules or the tests HMRC uses for PAYE.
That raises a practical point. In future, someone could be a worker for employment rights, entitled to holiday pay and the minimum wage, while still being self-employed for tax. If that happens, businesses would need to apply two different tests and keep records for both.
When could it happen?
Not soon. Any change needs new primary legislation and there is no timetable yet, so reform is likely to be some way off. But the direction is clear, and the consultation is your chance to have a say before it closes on 8 January 2027.
What to check now
You don't need to change anything today, but it's a sensible moment to review how you engage people who aren't on your payroll:
List everyone you pay on invoice rather than through PAYE, including regular subcontractors and freelancers.
Look at how each arrangement works in practice: who sets the rate, who decides when and how the work is done, and whether they really could send someone else.
Check your written agreements match what actually happens day to day. A substitution clause that is never used may carry little weight.
Keep a short note of why you decided each person is self-employed. If a presumption of worker status arrives, evidence will matter.
Keep checking IR35 and CIS separately, as those tax rules haven't changed.
Employment status for employment rights is ultimately a legal question, so for contract wording an employment solicitor is the right person to ask. Where we can help is the numbers and the admin. If someone turns out to be on the wrong side of the line, moving them onto your payroll is often simpler than it sounds, and Jackson Lee Accountants can work out the cost of holiday pay, employer's National Insurance and pension contributions before you decide.
Need a hand with this? We're accountants in Bury, and our payroll service covers new starters, RTI, auto-enrolment and payslips for a fixed fee.
Talk it through with us
If you use contractors and would like a second pair of eyes on how they're set up, book a free, no-obligation 30-minute chat by phone, Teams or at our Bury office, or see your fixed fee online in 2 minutes. Prefer to talk now? Call 0161 327 0047.
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