Bogus self-employment, agency work and the use of umbrella companies leave workers out of pocket and unable to access their rights, says BRIAN RYE
MANY private-sector construction workers have never been employed in a standard employment relationship. Instead workers are required to operate via a mixture of false self-employment, umbrella companies and employment agencies.
This stems from the employment model of the vast majority of major contractors who barely employ any construction workers on their projects and are then subcontracted several times over.
The subcontractors and employment agencies then do everything possible to divest themselves of any employment relationship with the workers who are doing the work.
This is all about boosting the profits of construction employers. By not employing workers you avoid having to pay employers’ national insurance contributions of 13.8 per cent and also often don’t have to pay other benefits such as holiday pay, sick pay and pensions.
The problem of false self-employment has bedevilled the industry for decades. It occurs when a worker is categorised as self-employed for taxation purposes but has all the employment characteristics of an employee.
False self-employment usually occurs through the Construction Industry Scheme (CIS), a standalone taxation scheme. Uniquely for the self-employed under CIS, workers are taxed at source and then can make an expenses claim at the end of the year.
The fact that workers are officially self-employed means that they can be dismissed without warning, even if you have worked for the same employer for many years. The problem of umbrella companies arises out of a decision by the previous coalition government in April 2014 to crack down on false self-employment of workers being engaged via employment agencies.
The government said these workers couldn’t be self-employed but had to be directly employed. Rather than employ workers on a standard PAYE basis, the industry almost overnight moved the workforce onto umbrella companies (a bizarre but legal form of employment).
Under the umbrella company system the worker is hired by an agency at a set rate but the amount agreed is not what the worker receives. Officially they only earn the minimum wage (although for construction workers, wages are usually boosted by mechanisms described as performance-related pay and other colourful terms). The amount the worker had negotiated goes to the umbrella company. The umbrella company levies a weekly charge for paying the worker, which can be up to £30 a week.
Then the real crime begins as the worker has to pay both the employer’s and employee’s national insurance contributions. With income tax it means that workers are losing over 45 per cent of their eligible earnings in deductions.
On top of this, holiday pay is also rolled up into the rate, and paid weekly. When holidays are taken they are effectively unpaid. If a worker is auto-enrolled into a pension, they have to pay both their own contributions and the employer’s. Following all these deductions, the pay the worker expected has been severely eroded. The only benefit for the worker is that they can offset their expenses against tax directly through their pay, but this advantage is being withdrawn at the end of March, which will cost workers on average £1,000 a year and in extreme cases over £3,000.
Given all the different deductions and massaging of the pay you will be unsurprised that workers genuinely do not understand their payslips. Sadly problems of false self-employment and umbrella companies are no longer unique to the construction industry and are seeping into many other professions such as driving, the care sector, warehouse work and even supply teaching.
The government estimates that over 430,000 workers are engaged on umbrella company-type contracts. Without legislative changes, the role of Ucatt is to negotiate and expose the rogues. Where possible Ucatt negotiates with clients, contractors, councils, regional and national governments to ensure only directly employed workers are recruited on their projects.
When organisations won’t negotiate or when companies wilfully flout these rules, resulting in the exploitation of workers, they need to be shamed either via demonstrations or through the media.
The long-term solution requires radical reform of the taxation system and employment rights. All forms of false self-employment and umbrella companies should be outlawed and the CIS scheme scrapped. There needs to be reform of employment status laws to create only two categories of workers, employees and the genuinely self-employed.
The casual nature of the industry and the lack of fixed establishments means other reforms are also urgently needed. For example, workers cannot claim for unfair dismissal unless they are in post for two years.
For many workers on sites a three month engagement is a long period and two years is a lifetime. Without this basic protection workers are totally exposed to a hire-and-fire culture. That is why we need legislation for full employment rights from day one, or as close to it as possible.
There are further desirable reforms. Currently it is a legal right to have a contract of employment but many of our members never receive one and there is no effective recourse. Equally employers should be barred from charging workers simply for receiving a payslip.
Construction is a tough industry but it should also be rewarding. But for too many that is not occurring as the playing field is levelled against them. Ucatt will continue to fight for the best deal possible for our members and all construction workers.
Brian Rye is acting general secretary of construction union Ucatt.