A recent report published by the House of Commons Work and Pensions Committee, titled ‘Self-employment and the gig economy’, concludes that the facade of self-employment recently highlighted in the gig economy is placing an unsustainable burden on the welfare state.
The committee’s inquiry was cut short by the dissolution of parliament this month but they felt it was important to release a shortened report, compiled from a large volume of evidence and documentation, including contracts used by gig economy companies and testimonies from self-employed workers.
The self-employed are a large and growing part of the UK labour force, with five million people, representing 15% of workers, being self-employed. One of the reasons for the growth of self-employment has been new technology that has spawned the ‘gig economy’.
Self-employment takes on many forms ranging from entrepreneurs and one-person business owners, to consultants and contractors across industries and pay scales.
The term ‘gig economy’ is used to refer to a wide range of different types and models of work. A common feature of many of these is a reliance on intermediary digital platforms or apps to connect self-employed workers with work. Gig economy companies often operate in industries that have historically relied on self-employed workforces. Uber, for instance, relies on self-employed drivers using its app to provide taxi services. Taxi drivers are traditionally self-employed. So, whilst Uber’s employment is nothing new, it currently has 40,000 drivers working on its platform thereby having the potential to disrupt and reshape existing working practices in the industry.
A cornerstone of the welfare system is the principle of contribution.
Previously, the self-employed accrued rights to the basic state pension, but not to the earnings-related top-up. However, the new single-tier pension, that was rolled out from April 2016, will apply equally to the self-employed and employed alike without the self-employed seeing any increase in their NIC rate.
According to the report, the self-employed now have equal access to almost all of the support available through the welfare state but with some notable exceptions – Jobseekers Allowance (JSA) or Employment and Support Allowance (ESA). Neither can they claim parental benefits.
Gig economy companies, Deliveroo, Uber, Hermes and Amazon, told the committee that flexibility of their workforce was an important feature of their business models and this was valued by those who work for them.
Companies relying on self-employed workforces frequently promote the idea that flexible employment is contingent on self-employed status but even people on employment contracts can and do work flexibly.
A wide range of practices are blurring the lines between employment and self-employment and the committee were made aware of some of these such as:
In an attempt to cement the self-employed relationship, companies insert clauses into contracts preventing the worker from challenging their employment status. For example, a clause from a Deliveroo contract states, “You further warrant that neither you nor anyone acting on your behalf will present any claim in the Employment Tribunal or any civil court in which it is contended that you are either an employee or a worker.” Although such clauses are unlikely to be legally enforceable, to the average worker with little or no understanding of employment law they would not appreciate this and therefore the intended deterrent is clear.
The apparent freedom companies enjoy to deny workers the rights that come with employee or worker status fails to protect workers from exploitation and poor working conditions. It also leads to substantial tax losses and potentially increases the strain on the welfare state. An assumption of the employment status of ‘worker’ by default, rather than ‘self-employed’ by default, would protect both those workers and the public purse and would force companies to provide workers with basic rights and benefits. As tax law does not recognise ‘worker’ status, tax status would be unaffected.
Any companies wishing to deviate from this model would be required to present the case for doing so, therefore placing the burden of proof of employment status on the engager.
Frank Field, Chair of the committee, said, “Companies in the gig economy are free-riding on the welfare state, avoiding all their responsibilities to profit from this bogus ‘self-employed’ designation while ordinary taxpayers pick up the tab. Uber’s recent announcement that it will soon charge its drivers for sickness cover is just another way of pushing costs on to the workforce, to reinforce the impression that those workers are self-employed.”