Avoiding Worker Misclassification: A Procurement Leader’s Guide to Engaging External Talent
As organizations rely increasingly on external talent, correctly classifying workers is essential. Rebecca Seeley Harris, the UK’s leading expert on employment status and IR35, draws on 25 years of advising government and businesses to show procurement teams how to reduce misclassification risk, navigate recent case law, and prepare for upcoming UK and EU rules.
Why This Matters for Procurement
The European labour market is changing fast. Businesses increasingly rely on external talent from freelancers and consultants to agency workers and contractors to deliver agility and specialist expertise. With this flexibility comes responsibility, but it can be managed effectively with the right approach.
For procurement leaders managing complex supplier ecosystems, worker classification is no longer just a compliance issue; it’s an opportunity to set clear expectations with suppliers, strengthen trust, and ensure consistent delivery of services.
The Risks of Misclassification
Misclassification occurs when a company treats a worker as self-employed or as an independent contractor when, under the law, they should be classified as an “employee” or a “worker.” In those cases, they may be entitled to employment rights such as paid leave or equal treatment, or tax authorities like HMRC may consider that they have not been taxed correctly. While the consequences can be serious, maintaining accurate contracts, documenting working arrangements, and reviewing roles regularly can prevent issues before they arise.
Handled properly, classification supports:
Fair treatment for those delivering services.
Accurate tax and payroll processes, avoiding future corrections.
Transparent supplier relationships, where responsibilities are clearly understood.
Operational certainty, allowing procurement to plan and manage resources confidently.
What Recent Case Law Tells Us
Two recent UK decisions show how important it is that contracts match the real working relationship.
In Lutz v Ryanair [2025] EWCA Civ 849, pilots hired through agencies were found to be “agency workers” because, in practice, they worked under Ryanair’s operational control. The court looked beyond the contract wording and focused on how the job was actually carried out.
Similarly, in HMRC v PGMOL [2024] UKSC 29, the Supreme Court examined the employment status of football referees for tax purposes; the question is still not fully resolved after years of litigation as it has been sent back to the First Tier Tribunal to remake the decision. Both cases highlight the value of clarity from the start, which helps avoid uncertainty and keeps operations running smoothly.
For procurement teams, the lesson is to review how work is managed day to day. If your organisation sets working hours, approves leave, or directs performance, the individual may not be truly independent, and contracts should reflect that reality. When contracts match how work is actually done (hours, reporting lines, and responsibilities) both the business and the worker understand their rights and obligations clearly.
The Platform Worker Directive: A Shift in the EU Landscape
The EU’s Platform Worker Directive (EU 2024/2831), adopted in December 2024, marks a major shift. It introduces a rebuttable presumption of employment where platforms control key aspects of work, such as pay, schedules, or performance. For procurement, this provides a clear framework to ensure fair and compliant engagement of platform-based workers.
Other key obligations:
Algorithmic transparency: Platforms must explain how automated systems influence work and ensure human oversight of significant decisions (e.g., suspensions).
Human oversight: ensuring key decisions are not made solely by software.
Data limitations: Restrictions on invasive monitoring and predictive profiling.
Reporting duties: Platforms must share key data with regulators to support enforcement.
EU Member States must transpose this Directive into law by 2 December 2026. So, procurement strategies that rely on platform-sourced labour or intermediaries need to adapt now.
Procurement Playbook: 6 Steps to Reduce Misclassification Risk
Map Your External Workforce
Segment your external talent pool: freelancers, consultants, agency workers, umbrella workers, and PSC contractors. Each group carries distinct rights and obligations. Avoid treating them all under a single category.Align Contracts with Reality
Boilerplate clauses denying employment status won’t stand up if day-to-day practices suggest otherwise. Ensure contractual terms mirror the actual relationship and working conditions. Contracts that match how work is actually done help workers, suppliers, and procurement teams feel confident.Assess Control and Integration
The more control your organisation exerts over work hours, methods, tools, or integration into internal systems, the greater the likelihood of employment status. Procurement should factor these indicators into sourcing decisions and risk assessments. Spotting these factors early helps clarify expectations and avoid misunderstandings.Stay Ahead of New UK Rules (April 2026)
Forthcoming UK reforms impose joint and several liability for tax on agencies and, in some cases, on end-clients. Procurement must ensure supplier contracts and governance frameworks account for this shift. Discussing compliance and tax responsibilities with suppliers early will make meeting these new obligations smoother.Embed Compliance in Supplier Selection
During RFPs and supplier evaluations, probe potential partners on their worker classification processes. Ask how they assess employment status, ensure equal treatment rights, and manage payroll and tax compliance.Monitor Throughout the Contract Lifecycle
Classification is dynamic. Relationships that start as consultancy arrangements can evolve into employment over time. Schedule regular reviews, ideally every 6–12 months, to catch status changes before they become liabilities. Regular reviews give procurement teams reassurance and control over how external roles develop.
Final Thoughts: From Compliance to Strategic Advantage
External talent is essential to modern procurement strategies, but it introduces legal, financial, and reputational considerations. Recent case law shows that courts will prioritise the reality of working relationships over contractual labels, while forthcoming EU and UK legislation provides more clarity. By following clear classification processes, carrying out thorough supplier checks, and reviewing arrangements regularly, procurement leaders can work with external talent confidently, stay compliant, and maintain strong supplier relationships.