Reducing bogus self-employment and supporting the genuinely self-employed
Self-employment is now a mainstream part of the UK labour market: around 15 per cent of people work in this way. For most people, working for themselves provides welcome flexibility, independence and the reward of growing their own business. However, for some people who are self-employed, the reality is very different.
What is bogus self-employment and why is it important?
Research we published today highlights our estimate that as many as 460,000 people in the UK could be bogusly self-employed. These are people whose work has all the hallmarks of employment but who have been classed as self-employed by their employer.
This means the employer avoids their National Insurance and any pension contribution, whilst also claiming they do not have to provide basic employment rights. In some cases the employer doesn’t even tell people they’ve been classed as self-employed, and, because the self-employed are usually responsible for their own tax arrangements, this can result in surprise tax demands, often years later.
The bogus self-employed can lose out on wages, holidays, sickness pay and some benefits, such as statutory maternity and redundancy pay which they would be entitled to as employees. They also often don’t see any of the advantages of true self-employment, such as more flexible hours, self-direction and control over their work.
However, they are not the only ones who suffer. The Office of Tax Simplification has estimated that confusion around employee and self-employed status costs UK businesses who want to follow the law a total of £51 million per year (for compliance audits, inspections and legal advice).
They estimate the loss to the government is an extra £314 million through underpayment of tax and National Insurance. So bogus self-employment means good employers are put at a competitive disadvantage by rogue employers who try to avoid their responsibilities, while we all suffer the losses to the public purse.
Why does this continue?
Currently the only way to prove bogus self-employment, and secure the employee rights this provides, is to go to an employment tribunal. Bringing a claim in the employment tribunal is costly to both the employee (who has to pay between £390 and £1,200 to progress a claim) and the employer (who has to pay to defend the claim). It is also legally uncertain because the law is complex and there are grey areas, meaning that there is no guarantee of success.
Our own research last year found that 82% of people with problems at work said the current tribunal fee prices make them less likely to, or completely stop them from, going to tribunal. This suggests employment tribunals are a costly, inefficient and ineffective way of reducing the problem of bogus self-employment.
What can we do?
Fortunately, the Government is currently reviewing support available to self-employed people, and we are about to launch a new national campaign to help the growing number of people coming to Citizens Advice for help about this type of work. Our campaign will emphasise the positive opportunities self-employment brings for people to be more flexible and to have more control over their work.
We will argue that we should remove barriers that stop people working for themselves, if this is the form of employment that best fits with their lives. We will also campaign for more help, particularly during the first years of starting a business, to ensure the growing number of self-employed have enough security to develop their business to its full potential.
However, we will also use this campaign to highlight the practice of bogus self-employment and identify the employment rights and responsibilities of individuals. We want to make sure that people know the benefits and costs to themselves when they choose genuine self-employment but are not fooled by job offers that have none of these advantages.
Apart from reducing harm to those who are caught up in bogus self-employment, this would also bring significant cost savings to employers who comply with the law (including many small and micro-businesses) and the government itself.
Please let us know what you think
If you would like to become involved in our national self-employment campaign, please get in touch with me. For more information on the ‘Neither one thing nor the other’ research on bogus self-employment published today, please contact SJ Jacobs.