Amidst the significant focus on headline reforms in the Employment Rights Act 2025 (‘ERA 2025‘), such as new trade union access rights and uncapped unfair dismissal protections after six months, the Government’s proposals on worker status have received comparatively less attention.
Initial indications were radical, but vague: a potential consolidation of the familiar three-tier system (employee, ‘limb (b)’ worker, self-employed) into a single ‘worker’ status would have been a landmark shift. The Government’s new consultation, launched on 14 October 2026 (Make Work Pay: employment status reform and protections for the self-employed), now provides a clearer picture of the specific changes proposed.
1. The Tripartite System Stays – For Now
The three-tier framework is staying for the time being. Instead of an immediate overhaul, the Government’s core proposal focuses on removing the ‘silver bullet’ effect of an unfettered right of substitution and placing less emphasis on ‘personal service’ when determining worker status.
Under current law, a genuine right to provide a substitute can block an independent contractor from claiming worker status. The proposed reform would elevate the importance of control in the test for worker status so that substitution and failure to provide personal service would not be fatal in the assessment. As a result, many individuals that are currently classified as self-employed purely due to a contractual (and substantive) substitution clause are likely to fall within the ‘limb (b)’ worker category should these reforms take effect.
Alternative approaches are also put forward for feedback, including demoting substitution to just one factor among many within a holistic assessment, rather than being the sole or overriding factor in preventing someone being found to be a worker.
Views are also sought on whether the term ‘limb (b)’ worker should be replaced, although no suggestions are made for alternative terminology.
2. Key Procedural Changes
The consultation also introduces proposals for significant procedural shifts:
- Presumption of Worker Status: A statutory presumption of ‘limb (b)’ worker status is proposed, reversing the current burden of proof on the individual to establish that they have worker status. Engagers would be be required to prove that an individual is not a worker in Employment Tribunal claims. This would apply to all rights that flow from an individual having worker status, including holiday pay and access to a workplace pension
- Fair Work Agency Direct Enforcement: Views are sought on whether the new Fair Work Agency (‘FWA‘) should be empowered to bring tribunal claims directly to establish status for cohorts of individuals. This could be particularly impactful for lower-paid or fragmented workforces where individuals face barriers to bringing claims independently
- Aggravated Penalties for Misclassification: The Government proposes financial penalties ranging from £100 to £20,000 per claim for businesses that repeatedly misclassify workers after an adverse tribunal decision on similar facts
- New Online Assessment Tool: Views are sought on whether a new online assessment tool would help individuals and employers assess likely employment status (similar to the CEST tool that currently exists for tax purposes). Any output would be non-binding
3. Extending Rights to the Self-Employed
Alongside changes to the worker status test, the consultation proposes extending baseline statutory protections directly to genuinely self-employed contractors. These include:
- Entitlement to a written statement of basic terms (including terms relating to pay, period of work, scope of work and termination). The Government is consulting on whether certain qualifying criteria should be required for an individual to be entitled to a written statement
- Health and safety protections, so that self-employed people would be protected from detriment where they take appropriate steps to protect themselves or others from serious and imminent danger in the workplace
- Protections against trade union-related blacklisting
4. What This Means for Employers
The practical impact of these proposals will vary depending on your business model:
Low-Risk Contractor Models
For businesses engaging a small number of genuinely self-employed specialist contractors, the immediate impact will be manageable should the reforms be taken forward, primarily involving administrative additions like providing written terms.
However, that’s not to say that engaging self-employed talent in the UK is easy – it just won’t necessarily get a lot harder because of these proposals. It remains a complex area requiring ongoing care to mitigate off-payroll tax (IR35) and termination liabilities. Furthermore, the unfair dismissal reforms in the ERA 2025 will increase the potential financial upside for individuals challenging their status upon exit.
High-Risk / Scale Contractor Models
For organisations relying on large populations of self-employed contractors, from platform economy operators to tech, logistics, and professional services firms, the potential impact is significant:
- Substitution May No Longer Protect: Substitution clauses have long served as a key shield against worker claims. If these proposals proceed, that contractual safety net will disappear
- Tactical Disadvantage in Litigation: The shift in the burden of proof means engagers will start on the back foot in status disputes before tribunals
- Escalated Financial Exposure: Aggravated penalties and direct FWA intervention could create substantial commercial and reputational consequences for getting classification wrong
Next Steps
Given that the consultation runs until 8 January 2027 and implementation timelines remain unconfirmed, it would be premature to immediately rewrite contractor agreements.
However, businesses with operating models reliant on independent contractor talent should start evaluating their workforce structures now. This is particularly critical where multi-year pricing models, commercial tenders, or client contracts rely on assumptions about contractor classification (and therefore cost) that may no longer be viable should legislation be made to bring these proposals into force.
