Government to Review Employment Status

Summary

The UK government has confirmed it will launch a consultation on employment status by the end of 2025. This move could have a profound impact on contractors, freelancers, and the self-employed across the UK. With potential changes to IR35 and broader definitions of self-employment, it's crucial for contractors to stay informed and proactive.

What’s Been Announced?

During the House of Lords Report Stage for the Employment Rights Bill on 23 July 2025, Baroness Jones confirmed that a major consultation on employment status will be published before the end of the year. This review aims to address:

• The complexity of employment status definitions
• The mismatch between tax and employment law
• Issues around substitution clauses in contracts
• Enhanced protections for self-employed people (e.g., health and safety)
• The need for better data and modern occupational classifications

Peers highlighted that these matters affect the entire economy, not just freelancers in creative sectors. For the full debate, see the [Hansard record](https://hansard.parliament.uk/Lords/2025-07-23/debates/654BF399-EF86-4E71-91B8-F86A007B98F0/EmploymentRightsBill?highlight=employment%20status#contribution-6CAA3764-08C3-4F1D-BE57-21D9EBFE9001).

Additionally, rather than appointing a statutory commissioner for freelancers, the government will establish a “freelance champion” within the Department for Culture, Media & Sport (DCMS) to represent this expanding workforce.

Enforcement and the Fair Work Agency

The Employment Rights Bill introduces a key enforcement measure: Clause 113 gives the new Fair Work Agency the power to bring employment tribunal proceedings on behalf of workers in sectors where misclassification is common and existing enforcement has fallen short. An attempt to remove this clause was defeated, signaling the government’s intent to actively address worker misclassification.

Key Areas the Consultation May Cover

Here’s what contractors and businesses should watch for:

Area	Potential Focus
Clearer status tests	Simplifying the categories of employee, worker, and self-employed
Substitution clause abuse	Addressing contracts with theoretical substitution rights not used in practice
Protections for self-employed	Examining targeted measures, especially in health and safety
Data and definitions	Using better ONS data to define modern freelance and hybrid work

This could lead to more clarity and possibly new rules on how IR35 and employment law interact.

Expert Insights

Seb Maley, CEO of Qdos, on the gap between tax and employment law:

"As it stands, you can be self-employed for tax purposes but under employment law, considered a ‘worker’ – which effectively entitles you to employment benefits. This leaves many gig workers, in particular, in limbo land – unsure of whether they’re truly self-employed, employed or sit somewhere in-between."

On the risks of poorly designed reforms:

"The danger is that the government takes the view that all independent workers are vulnerable and need and want greater protection – employment rights and benefits that result from employment. As we all know, this just isn’t the case. Millions of individuals – contractors, freelancers and business owners – aren’t asking for this... They do not by any stretch of the imagination want to be pushed closer to being an employee."

Rebecca Seeley Harris, RE: Legal Consulting:

"This is the biggest shake up in employment status in decades. This, along with the change in the tax liability for umbrella companies and the upcoming consultation on the Conduct Regs for employment agencies, will make significant changes to the labour supply chain.

The consultation needs to ensure that the genuinely self-employed can work without restrictions but with fair working practices. False self-employment has been a big problem, especially in the gig economy, so hopefully this consultation will solve that for both tax and employment rights purposes."

What Contractors Should Consider

• Fewer disputes: Aligned rules could make employment status easier to determine, reducing costly legal battles.
• More confidence for clients: Simpler frameworks may encourage more outside-IR35 contracts.
• Potential trade-offs: Over-simplification could force genuinely independent workers onto payrolls, reducing flexibility.

Tip: While the consultation is running, current laws remain in force. Contractors should continue reviewing contracts, working practices, and seek independent IR35 status assessments.

What’s Next?

• The employment status consultation will be published by the end of 2025.
• The government will respond after gathering feedback.
• Any legislative changes will follow impact assessments and further review.
• No immediate changes to law are expected until after consultation and new legislation.

Stay Informed:

• Monitor updates from government, trade bodies, and contractor specialists.
• Prepare to participate in the consultation to ensure contractor voices are heard.
• Review your current arrangements and seek advice if you have concerns about your employment status.

"This is a once-in-a-generation opportunity to simplify and clarify the contracting landscape. Make sure you stay ahead of the curve."