Government confirms employment status consultation by end of 2025

The government will launch a consultation on employment status by the end of 2025. Experts say it could be a significant step for millions of self-employed workers, with the outcome carrying significant tax implications.

What the government has confirmed

During the Lords Report Stage of the Employment Rights Bill on 23rd July 2025, Baroness Jones confirmed on behalf of the government that the consultation on employment status will be published by the end of the year.

She also signalled that the consultation will seek views on problems with “substitution” clauses that do not operate in practice, stronger protections for self-employed people (with health and safety cited as an example), and using better data and definitions, including ONS work refining occupational classifications relevant to freelancers and hybrid roles.

In the debate, peers described the current framework as “important and complex” and stressed that employment status matters “across the economy, not just freelancers in the creative and cultural sectors.”

You can read the whole exchange in the Hansard record here.

Peers also discussed representation for freelancers. Rather than creating a statutory commissioner, the government is proceeding with a “freelance champion” role within DCMS to act as a focal point for this workforce.

Enforcement context you should know about

Separately from the consultation, the Bill contains a power (Clause 113) that would allow the new Fair Work Agency, acting on behalf of the Secretary of State, to bring strategic employment tribunal proceedings in the name of a worker under certain circumstances.

An attempt to remove Clause 113 was defeated in the Lords on 23rd July. The government’s stated aim is to use this power in sectors where misclassification is endemic and current tools are not sufficient.

What this could cover in practice

• Clearer status tests: Options to simplify how the employee, worker and self-employed categories operate, and reduce the mismatch between tax and employment law tests.
• Substitution clause abuse: Looking at contracts that claim a right to substitute but where, in reality, clients would not accept it.
• Protections for the self-employed: Exploring targeted measures, with health and safety mentioned by ministers as one area to review.
• Better data and definitions: Making use of more granular ONS coding to reflect modern freelance and hybrid roles in evidence and policy.

Expert view

Seb Maley, CEO of Qdos, answered some of our questions earlier today:

“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.”

“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 may well want more support from government, in the form of a friendlier tax landscape, but they do not by any stretch of the imagination want to be pushed closer to being an employee.”

Rebecca Seeley Harris of RE: Legal Consulting, added:

“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.”

Why contractors should care

• Potential for fewer disputes: Clearer, aligned rules could make status easier to determine up front and reduce expensive tribunal battles.
• Client confidence: Risk-averse engagers may be more willing to use outside-IR35 engagements if the framework is simpler to apply.
• But watch the trade-offs: Poorly designed simplification could push more people onto payroll, limiting independence for those who genuinely run a business on their own account.

While the consultation is ongoing, the existing regime remains in effect. Contractors should continually review and strengthen their contracts and working practices, and obtain independent contract assessments where necessary.

What happens next

The consultation is expected to be published by the end of 2025, followed by a formal government response. Any legislative changes would be implemented later, following impact assessments at that stage. In short, there is no immediate change to the law until after consultation and any subsequent legislation.