What Contractors Need to Know About the New Labour Government

In the UK, 4th July 2024 was a momentous day. A new Labour government, with a substantial majority, had been elected. Any contractor, freelancer or self-employed worker will be asking themselves: how is this likely to affect me? Labour’s general election manifesto included, among other things, a wide-ranging set of proposals concerning the economy, workers’ rights, the environment, the future of work and more.

In this guide from Compare Your Pay, we take the main policies and proposed changes in the new Labour government and explain what this means for contractors.

IR35 and Employment Status

IR35 – the rules governing self-employment and disguised employment – remains a huge concern for contractors, but despite this being a sensitive issue, it wasn’t mentioned in Labour’s manifesto at all. However, the party’s proposal to create a firmer distinction between different types of employee and the self-employed could alter IR35.

Labour’s Plan to Make Work Pay has renewed anticipation of a new class of intermediated employment status between that of employee and self-employed that could finally put an end to ‘false’ self-employment, and perhaps clear up the status of contractors who are regarded (under IR35) as employees in disguise. It remains to be seen whether immediate reform of IR35 lies in store. But contractors will be watching for further developments very closely. 

Worker Rights and Protections

Labour has made giving workers rights a priority, and this includes contractors and the self-employed. Central proposals include:

Umbrella Company Workers

Contractors working through umbrella companies will have better protection, especially in terms of sick pay. Labour will institute day-one statutory sick pay that will provide much-needed financial support in the event of illness.

Contractual Security

In a major step forward, Labour has pledged to introduce written contracts for all self-employed workers, helping to bring clarity and security to their working arrangements.

Late payments

Chronic late payments have been a long-standing problem for contractors. Labour has pledged to tackle late payments, promising to get back £20 billion currently tied up in late invoices. This should take some of the financial pressure off contractors relying on cash flow from regular invoices.

In-Work Protections for Contractors

Labour’s proposed in-work protections for contractors will also extend beyond traditional employees:

Health and Safety

It will be easier for contractors to know and enforce the rules about health and safety, so their rights are protected, even if they are freelance or self-employed.

Whistleblower Protection

Labour will legislate to protect contractors from retaliation by the contractor for reporting wrongdoing, protecting the most vulnerable from unfair retaliation.

For contractors, these reforms will create extra assurance when entering into work arrangements with real risk to their physical safety or job security.

Taxation and Financial Compliance

There is some good news for contractors operating through limited companies, however. Labour has indicated that it would seek to maintain the corporation tax rate of 25 per cent. This should keep tax planning on contractors’ minds in the near term, but Labour has also indicated that it will be undertaking a broader review of tax compliance. Contractors should be vigilant for changes in the tax rules, such as where certain expenses or business costs might fall for tax purposes.

Moreover, their manifesto promised to shut tax avoidance loopholes, which might herald increased tax compliance requirements for contractors and freelancers.

Green Economy and New Opportunities for Contractors

Labour’s Green Prosperity Plan, which forms the most radical part of its economic programme, promises to generate ‘thousands of new jobs’ as the economy moves to a zero-carbon electricity system by 2030. If anything, contractors in the construction, engineering or energy consultancy sectors will be rubbing their hands with glee.

Green Energy Projects

Contractors in the green economy will see opportunities arise as the government invests in renewable energy infrastructure, such as wind farms or solar panels.

Green Skills

Contractors will also benefit from greater demand for green skills, as the country increasingly shifts towards a greener way of life. Labour is calling for a Green Skills Programme. Could this open up new avenues for contractors to upskill and access emerging markets?

Labour’s Right to Disconnect

Labour’s Right to Disconnect would apply to contractors too. And this could be particularly important for those who work remotely. Labour’s proposal would mean that contractors would have no obligation to be available, or respond, to communications about work outside the defined working hours.

This may require contractors to revise their contract to include a clearer definition of what is available, as well as how they will communicate when a client gets in touch outside of regular hours, to enable them to comply with the law without unduly stressing a relationship with clients.

Points-Based Immigration and Workforce Upskilling

Labour remains committed to the existing points-based immigration system – and is also pushing for upskilling the domestic workforce, which will affect those contractors who use migrant labour or work in sectors where demand for skilled labour is high.

For IT, construction or healthcare contractors, where use of migrant labour has traditionally been higher, tighter compliance with immigration rules may be the price of entry. But Labour’s emphasis on skills development within the UK workforce could open up new avenues for contractors to purchase local skills, and benefit from enhanced training packages.

Improved Trade Relations with the EU

Similarly, Labour’s pledge to build upon EU-UK trade might directly benefit contractors with European clients, as simplifying trade and cross-border employment rules would enable contractors to build their businesses across the UK and Europe.

Cross-border Contracts: Better relations with the EU could also mean less bureaucratic procedures for contractors who operate cross-border contracts, making it easier to work with European businesses.

Final Thoughts: Navigating Labour’s Changes as a Contractor

Labour’s policies will pose risks but also offer opportunities for contractors. From strengthening rights and protections for the self-employed to opening up new opportunities in the green economy, Labour’s roadmap will mean a period of change for the contracting community.

Contractors need to keep up with new developments, whether that’s changes to their employment status, taxation, or the rights they have over their working conditions. So, if you’re thinking of switching to an umbrella company or want to know more about how to prepare for the upcoming changes, Compare Your Pay is here to help. By staying informed and keeping on top of things, contractors needn’t have to fear for their industry or their businesses; they can take control of the situation and continue to thrive, even when politics and economics change.