False Self Employment
False Self Employment
What is false self-employment?
False self-employment is used by many employers to evade taxes and engage workers without having to respect employment rights and entitlements such as holiday pay, sick pay and pensions. It is immoral though not illegal.
Undoubtedly, it is the biggest employment rights challenge in construction. Despite decades of campaigning by UCATT, many employers still seek routes out of fair employment. From misuse of the Construction Industry Scheme (CIS) to payroll companies, false self-employment is rampant. Today, UCATT estimates over 50% of those working in the industry are falsely self-employed. The CIS Scheme is the main facilitator of false self-employment. It allows companies to deduct tax at source and avoid employing workers directly.
Workers engaged in false self-employment miss out on rights such as:
- Paid sick leave
- Holiday pay
- Overtime rates
- Redundancy pay
- Travel allowances
- Pension contributions
- Employment protections
This means that you only get paid for every day you work and do not enjoy the entitlements listed above that other employees take for granted. That’s why UCATT makes this our number one employment priority for members.
UCATT has continually pressured Government to end the practice, in the face of hostility from employers’ federations. We forced the Labour Government in 2009 to act on the problem. Their proposals would have meant hundreds of thousands of workers being classified as employees; however the election of a Conservative/Lib Dem administration in 2011 prevented this progress.
UCATT continues to raise the issue and moved a motion at TUC Congress 2011 condemning payroll companies. This was carried unanimously.
UCATT's report The Great Payroll Scandal estimates that false self-employment is costing the Exchequer £1.9 billion per annum.The Great Payroll scandal builds on an earleir comprehensive report into false self-employment The Evasion Economy.
As well as the impact that this has on individual workers, this is money that needs to be collected to give construction spending a shot in the arm and support jobs and apprentices. This is money that should be used to help rebuild schools, roads and hospitals. That’s why we must stamp this out.
In September 2013 UCATT strongly welcomed Labour’s announcement that they will stamp out false self-employment in the construction industry and other major tax breaks for businesses to fund the removal of the bedroom tax.
Labour are now committed to implementing a policy that will see workers with all the characteristics of employees but registered as self-employed through CIS, demmed to be employees for tax purposes, unless they meet strict criteria to prove that they are self-employed.
In recent years there has been a major change in how false self-employment often occurs. A multi-million pound industry has been created to try to legitimise these practices.
Increasingly individual firms are outsourcing false self-employment practices to payroll companies.
A payroll company operates by requiring a worker to sign a contract stating they are self-employed. In many cases the worker in reality still works for a single employer but will be denied all the rights of an employee. To add insult to injury the worker is usually expected to pay for the payroll company’s services with a weekly charge (usually £15-£25) taken directly from their wages.
UCATT have recently released a hard hitting in-depth report into the activity of payroll companies, The Great Payroll Scandal which was written by investigative journalist Jamie Elliott.
Whilst writing the report Mr Elliott created a fictitious company Fairbrother Builders and then contacted payroll companies to enquire what would happen if he transferred his workforce to a payroll company.
The responses from Hudson Contracts the largest payroll company whose website claims that they have over 117,000 “freelance operatives” on their books was illuminating and worth listening too.
New Agency Workers Rules
Following lengthy UCATT campaigning, lobbying, and publication of academic research, the UK government finally conceded through the Autumn Budget statement in 2013 that false self-employment was indeed a problem which they would need to tackle.The Government announced in that statement that it intended to strengthen existing legislation to prevent false self-employment facilitated by employment intermediaries.
A consultation document, Onshore Employment Intermediaries: False Self-Employment was published on 10 December 2013 setting out the proposal to tackle the level of avoidance from false self-employment. The policy objective was to tackle the avoidance of employment taxes, by taking action to prevent employment intermediaries (both onshore and offshore) from avoiding their obligations, including through disguising employment as false self-employment.
The recently implemented Finance Bill 2014 (Part 1, Chapter 2, Section 16: April 6th) sets out the regulations where a worker should be treated for tax purposes as holding employment with the agency where the worker then provides services to the client, and as such should be taxed under PAYE.
Impact of the Changes
Government estimates suggests conservatively that around 200,000 workers in the construction sector, and 50,000 in other sectors, are reckoned to be engaged with and through onshore employment intermediaries.An onshore intermediary is either an employment agency or a payroll company
By virtue of being treated (correctly) as employees, all qualifying workers within this measure will gain Statutory Payments such as: holiday pay, statutory sick pay and maternity pay and some will be eligible for National Minimum Wage (NMW). In the majority of cases the worker will also gain the benefits of being an employee for employment rights purposes, although this will depend on them being within the case law tests set out by the courts.
These workers will face higher tax and NIC liabilities, but will no longer be paying service charges (which can be as high as £1,250 per year) to an intermediary company.
UCATT described the government proposals as a “first step” on false self-employment, essentially welcoming the fact that this would help deal with the issue of agency workers being forced into self-employment, disguising the reality of the employment relationship between the main contractor, agency and worker.
However UCATT responded to the consultation by arguing that the government, if it were serious about tackling the wider issue of employment status, would need to further than implementing the soft criteria that a worker would be switched to PAYE if direction, supervision and control, could be established. UCATT argues for harder criteria to establish genuine self-employment.
UCATT also cautioned the government that intermediaries would attempt to sidestep these criteria by establishing systems of contractual formulations which would place the workers outwith the criteria to establish that the workers should be outside the definition of a PAYE worker.
Furthermore, UCATT argued that as well as these measures government should re-introduce the deeming proposals that the previous Labour administration were committed to which would have seen all construction workers (not just those employed by employment agencies and payroll companies) deemed as employees for tax purposes unless they provided their own equipment and materials or supplied their own labour. Our view has consistently been that if a worker satisfies the conditions to be in receipt of “employment income”, then he or she should be acknowledged to be an employee and gain all of the entitlements and obligations which an employee has.
Your next step
You can find out if you are being falsely categorised as self employed by visiting HMRC and answering some simple questions about your employment relationship. Please contact your regional office if you think that you’ve been wrongly classified.
By joining UCATT and getting involved with the union we can work together to ensure dignity and fairness at work for every construction worker.
Guide: Blacklisting and public procurement
Our new guide seeks to assist UCATT members in lobbying to stop public contracts going to firms that have blacklisted workers and have not made up for it. Download the Blacklisting & Public Procurement Guide now.
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