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Taking the Strain

Welfare state creaking because of bogus self-employment

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.

Defining the gig economy

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.

Welfare system

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.

Flexibility

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:

  • Aspects of control by the contracting company over working patterns, e.g being assigned shifts or rounds, with the risk of work being permanently withdrawn or charges levied if workers failed to fulfil them;
  • Workers who carried out regular working hours over substantial periods of time, up to periods of years for one company;
  • An inability on the part of workers to negotiate or set pay;
  • Workers experiencing difficulties in having substitute workers accepted by the contracting company, where they were unable to work their scheduled shifts; and
  • Guidance given to salaried staff on how to avoid referring to their workers in terms that might imply an employer-employee relationship, in light of their employment model.

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.

Workers’ rights

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.”

By Andy Vessey

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3 thoughts on “Taking the Strain”

  1. william shand

    This IR 35 I HAVE RECENTLY BEEN EFFECTED I WAS A SINGLE PERSON ltd company ,my field of expertise N H S ,which was set up because the H R M C terminated the C I S CONSTRUCTION INDUSTRY SCHEME .
    The LTD company was set up to the rules of H R M C ,I was Vat registered ,paid VAT , Also paid coperation Tax ,I was playing by there rules ,I completed a questionnaire which I had to pay for ,I answered all questions honestly , two questions , one was could I send a replacement if I was ill etc. I would like someone to explain why this government and its agency’s keep moving the goal posts all the time ?yet there major global companies that earn massive profits but because of loop holes they pay no tax ,this society is so out of balance the few have too much ,and can use any and all loop holes because of there wealth to shelter off shore . I was trying to make a living after being made redundant from the N H S because of a P F I , when promises were made but honoured ,I had worked from the age of 16 ,I was unemployed for 18 months , the system is broken payments my stamp sum total . agency work was my only option and this government has taken away perfectly good systems that myself paid my way to there rules .

  2. Simon Hewitt

    Don’t confuse possible exploitation as described above with those who *choose* to work as self-employed or within their own limited company.
    Some of us *choose* to work as contractors and are prepared to balance the freedom and chance of earning more against the downsides – running a business, being on-the-bench between contracts for 6 months or more, no sick-pay, no paid-holidays etc.
    I was paying 5 times more tax than I ever paid as a salaried employee and happy to do so but IR35 ruined that for my career. Letting the engager decide employment status is the most stupid idea I’ve ever heard of.
    I will be receiving a call today from a public body about the IR35 status of one of my company employees. They want to continue using her services but unless we agree she is outside IR35, she won’t be going back. They lose out, we lose out and the taxman loses out. Shambles.

  3. Andrew Harrison

    My wife is genuinely self employed. I had not considered the state pension consequences till this article. My spin on this is that this is smoke and mirrors come home to roost. The new flat rate pension less something for periods where a person was contracted out replaced the old pension plus state second pension etc. This was intended to look generous while the plus and minus kept a lid on costs. That’s fine if you have always been employed and understand pensions. It looks more generous than it is if you don’t spot the plus and minus (which is the smoke and mirrors). However for someone who has been self employed or has been accruing exemptions due to caring for children it is genuinely generous. Well it is nice that my wife has dipped in on this occasion. Although she does grumble about where her pension age has gone to.

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