Employment status reform: Government consults on changes to worker rights and self-employment

Published on the 14th October 2026 as part of the government's Make Work Pay programme, the consultation considers changes to how worker status is determined, how employment rights are enforced and what additional protections could be introduced for genuinely self-employed people.

For recruitment agencies, MSPs and other businesses involved in the temporary labour supply chain, the proposals are particularly relevant where individuals are engaged on a self-employed basis.

The government has also published an economic assessment estimating an annualised net direct cost to businesses of £167.8 million and an annualised net direct benefit to households of £153.9 million. The consultation closes on the 8th January 2027. No changes to the employment-status test have yet been introduced, and the government has not announced an implementation date.

What is the government proposing?

Employment law currently recognises three principal categories: employees, limb (b) workers and self-employed people.

A limb (b) worker is someone who does not qualify as an employee but personally performs work for another party that is not a client or customer of their own independent business. Limb (b) workers receive core rights such as the National Minimum Wage and paid holiday, but not the full range of rights available to employees, including ordinary unfair dismissal protection and statutory redundancy pay.

The term comes from section 230(3)(b) of the Employment Rights Act 1996. Although it is not widely used outside legal and HR settings, it is central to the reforms now being considered. The government's employment status guidance explains the existing categories and the rights associated with each.

The government is seeking views on proposals to:

• Place less emphasis on personal service when determining worker status.
• Give greater consideration to the level of direction or control exercised by an employer or engager.
• Introduce a presumption of worker status in relevant tribunal proceedings.
• Strengthen the consequences of repeatedly failing to recognise employment status correctly.
• Consider how the Fair Work Agency could support compliance and bring status cases.
• Develop a non-binding online employment status assessment.
• Strengthen certain protections for genuinely self-employed people.

The proposals concern employment status for rights in England, Wales and Scotland. They do not change the separate framework for tax status or the off-payroll working rules commonly known as IR35.

What additional protections are being considered for self-employed people?

Alongside changes to worker status, the consultation considers whether genuinely self-employed individuals should receive additional protections in certain areas.

One proposal is to introduce a right for certain self-employed individuals to receive a written statement setting out the terms of their engagement. This could include the scope of the work, payment arrangements and expected duration. The government is seeking views on which engagements should be covered and whether qualifying criteria should apply.

The government is also seeking views on extending certain blacklisting protections relating to trade union membership or activity, alongside additional health and safety protections for self-employed people.

These measures are being considered separately from changes to worker classification. Their purpose is to explore whether additional protections could apply to individuals who remain genuinely self-employed.

The government is gathering evidence on how these proposals could operate in practice, including which engagements they should cover.

What does the £167.8 million business cost estimate mean?

Alongside the consultation, the government published an employment status reform options assessment. For its preferred option of placing less emphasis on personal service when determining worker status, it estimates an Equivalent Annual Net Direct Cost to Business of £167.8 million.

This is an annualised figure calculated across a ten-year appraisal period. It is not the estimated cost in the first year.

The assessment puts first-year business costs at £207.4 million, comprising:

• £116.5 million for the National Living Wage.
• £4.5 million for holiday pay.
• £38.3 million for employer pension contributions.
• £0.2 million for whistleblowing and enforcement.
• £30.5 million in administration costs.
• £17.4 million in familiarisation costs.

The annualised figure is lower because some costs, including familiarisation and parts of the administrative work, would be incurred once rather than every year.

Why is there a £153.9 million household benefit?

The government estimates an equivalent annual net direct benefit to households of £153.9 million.

Most of the modelled business cost represents money or benefits being transferred to individuals who would gain worker rights. This includes additional pay where someone is currently earning below the National Living Wage, holiday pay and employer pension contributions.

The business cost is higher than the household benefit because organisations would also face administrative, familiarisation and enforcement costs that are not transferred to workers.

The assessment also identifies possible wider benefits, including improved wellbeing, greater security and a more level competitive environment for compliant businesses. It does not assign a monetary value to these potential effects.

How were the estimates calculated?

The government's calculation begins with an estimated population of 210,000 people who may currently be treated as self-employed because their arrangements do not satisfy the personal-service element of the worker-status test.

This estimate draws on further analysis of the government-commissioned Employment Status in the UK 2023 survey. The assessment estimates that approximately 99,000 of these individuals are paid below the National Minimum Wage and around 103,000 do not receive holiday pay. It also makes assumptions about average working hours and pay levels to calculate the potential financial impact of extending worker rights.

For familiarisation costs, the government uses an upper estimate of 188,000 potentially affected businesses, based on ONS data about the use of substitution clauses. However, it acknowledges that many of these businesses engage genuinely self-employed people and would not necessarily be affected.

These figures are estimates based on the available research and modelling assumptions, rather than confirmed numbers of individuals or businesses that would be affected by any eventual reform.

What is not included in the government's estimate?

The £167.8 million figure is not an estimate for the entire consultation package. The government's monetised calculation focuses on the effect of placing less emphasis on personal service when determining worker status. It does not fully account for:

• The proposed presumption of worker status.
• An expanded role for the Fair Work Agency.
• The possible online assessment.
• Most of the proposed protections for self-employed people.
• Changes businesses might make to their engagement models.
• Possible effects on prices, recruitment, working hours or commercial terms.

The assessment is a static calculation. It does not attempt to predict how businesses or individuals would respond if the proposals became law. The government also says it cannot provide monetised estimates by sector. There is therefore no separate calculation for recruitment agencies, MSPs, end clients, umbrella companies or other labour market intermediaries.

What is relevant to recruitment supply chains?

Many agency workers and umbrella employees already have worker or employee status and receive the relevant statutory rights. The consultation does not propose removing those established arrangements. The proposals are more directly relevant where individuals are treated as self-employed, particularly where the arrangement relies on a contractual right of substitution.

Personal service currently plays an important part in determining worker status. A broad and genuine right to send someone else to perform the work can indicate that an individual is self-employed. Under the proposed approach, substitution would remain relevant, but it might no longer prevent worker status where other factors point in the opposite direction.

The government is considering whether direction and control should carry greater weight. Relevant factors could include who sets the rate, determines how the work is performed and controls the conditions of the assignment. This is particularly relevant in recruitment supply chains, where contractual terms may be issued by one organisation while day-to-day control is exercised by another. The consultation does not yet explain in detail how the proposals would apply across those different relationships or how any resulting costs would be distributed.

The proposed presumption of worker status would apply in relevant tribunal proceedings where an individual's entitlement to rights associated with limb (b) worker status is disputed. Rather than the individual having to establish that they qualify as a worker, the engager would be required to demonstrate that they do not. The proposal would not automatically reclassify self-employed contractors, and the government is not proposing to introduce the same presumption for employee status.

What happens next?

The government is gathering evidence before making final policy decisions. Once the consultation closes, responses will be reviewed and the government is expected to publish its response in due course.

No new employment-status test has taken effect, so recruitment businesses do not currently have a new set of requirements to implement as a result of this consultation. For now, the proposals provide an indication of the areas the government is considering, including personal service, substitution, control, enforcement and additional protections for self-employed individuals.

The economic assessment also provides an indication of the potential scale of reform, although the government acknowledges that several proposals have not yet been fully costed and much of the practical detail remains undecided.

The consultation closes at 11:55pm on the 8th January 2027. Recruitment agencies, MSPs, umbrella companies, end clients and other interested parties can review the proposals and submit their views directly to the government.

You can read the full consultation and submit a response