Government Cracks Down on Misclassification in the Gig Economy: What Line Managers Need to Know
The UK government is intensifying its efforts to address worker misclassification in the gig economy. Companies such as YoungOnes and Temper have been warned that their practices, particularly the classification of workers as self-employed, may breach employment law. This heightened scrutiny is a wake-up call for line managers who oversee gig workers, emphasising the need to ensure compliance with regulations and protect the rights of workers.
What Is Worker Misclassification?
Misclassification occurs when a company labels a worker as self-employed when they should legally be classified as an employee or a worker. This issue is particularly prevalent in the gig economy, where companies often prioritise cost savings over compliance.
Why It’s a Problem
Workers who are misclassified as self-employed miss out on critical rights such as the National Minimum Wage, paid holiday, and protection from unfair dismissal. For businesses, misclassification can lead to costly legal challenges, significant fines, and damage to reputation.
UK Labour Government’s Stance on Misclassification
Employment Rights Minister Justin Madders has stated that “bogus self-employment” is unacceptable. Recent investigations have revealed significant issues in the gig economy, including:
Delayed payments to workers.
Lack of breaks during long shifts.
Denial of basic rights, such as holiday pay and sick leave¹.
These findings highlight the risks of misclassification and the need for stricter compliance with UK employment law.
The Risks of Misclassification for Line Managers
For line managers, misclassification poses operational, ethical, and legal challenges:
Legal Risks: Misclassified workers may bring legal claims against the company, leading to fines, back payments, and tribunal cases.
Reputational Damage: Companies seen as exploiting workers can face public backlash, harming their employer brand.
Operational Disruptions: Legal disputes and audits can disrupt day-to-day operations, impacting productivity.
In 2023, HMRC fined 191 businesses a total of £3.5 million for breaching employment status rules, with misclassification being a primary issue². This demonstrates the significant financial and operational impact misclassification can have on businesses.
Case Study: The Delivery Company
A delivery company classified its couriers as self-employed to avoid paying benefits like holiday pay and pensions. However, after several couriers brought legal claims, the courts determined they were workers under UK employment law.
The company was ordered to:
Pay substantial back payments for unpaid holiday and minimum wage discrepancies.
Reclassify their couriers as workers and update their employment practices to comply with the law³.
The fallout included not only financial costs but also reputational damage, with customers and prospective employees questioning the company’s ethics.
Key Takeaway: Cutting corners on classification may save costs in the short term but can lead to severe long-term consequences. Proper classification ensures compliance and protects the business from unnecessary risks.
Practical Applications for Line Managers
Proactively addressing classification issues can help line managers mitigate risks and foster a compliant workplace. Here’s how:
1. Review Worker Classifications
Regularly assess the employment status of team members. Determine whether they meet the legal criteria for self-employment, worker, or employee status based on factors such as:
Level of control over their work.
Requirement to complete work personally (no right to send a substitute).
Integration into the organisation’s operations.
Tools like HMRC’s Check Employment Status for Tax (CEST) tool can help managers make accurate determinations.
2. Implement Clear Contracts
Ensure contracts accurately reflect the nature of the working relationship. For self-employed workers, the contract should clearly state their independence, including their control over working hours and methods. For employees and workers, contracts must outline their rights to pay, holiday, and benefits in compliance with legal standards.
3. Provide Training for Managers
Educate line managers and HR personnel on the importance of worker classification. Training should cover:
Employment law basics.
Risks associated with misclassification.
Best practices for managing gig workers.
This ensures consistency across the organisation and helps managers address issues proactively.
The Thrive. Approach
By proactively addressing worker classification, line managers can uphold their legal responsibilities and contribute to a thriving workplace culture. Proper classification ensures workers feel valued and protected, which aligns with Thrive.’s mission to empower leaders to create workplaces that unlock potential, foster growth, and inspire teams to flourish.
Conclusion: The Importance of Getting It Right
The UK government’s crackdown on gig economy misclassification is a timely reminder of the importance of compliance. For line managers, ensuring workers are correctly classified isn’t just a legal obligations a key part of ethical and effective leadership.
By regularly reviewing classifications, implementing clear contracts, and providing training, line managers can protect their organisations from legal risks while fostering trust and morale within their teams. Proper classification isn’t just about avoiding fines; it’s about building a fair, sustainable workplace where both people and businesses thrive.
Reference List
1. Madders, J. (2025). Government statement on gig economy compliance.
2. HMRC. (2023). Enforcement of employment status rules.
3. UK Employment Tribunal Rulings (2023). Notable cases on misclassification.
4. Gov.uk (2025). Guidance on employment status: Employees, workers, and self-employed.
5. HMRC. (2025). Check Employment Status for Tax (CEST).
6. CIPD. (2024). Managing gig workers: A guide for employers.