Paying wages through umbrella companies and bogus self-employment means workers don’t receive any employment rights, including holiday pay, sick pay and can be sacked without warning, notice or reason, writes GAIL CARTMAIL
MUCH of the focus of the Taylor review has been on how it fails to address the rights of workers in the so-called gig economy and its risible failure to tackle the misery of zero-hours contracts.
There is a larger sector of workers who will feel equally dismayed about the Taylor review. This group is the one million-plus construction workers who are bogusly self-employed or paid via an umbrella company.
Unlike most other types of exploited workers, those operating in construction find themselves in their current predicament directly because of the way the Treasury operates.
Bogus self-employment, which occurs when a worker has all the employment characteristics of an employee but none of the rights, has been a major issue in construction for decades. For some reason practices which are unacceptable in other sectors are standard in construction.
Construction bogus self-employment is underpinned by the Construction Industry Scheme (CIS), a stand-alone tax scheme for the sector. Unlike any other form of self-employment, where the self-employed worker submits an invoice and is paid in arrears, under CIS the worker is taxed (normally 20 per cent on all earnings) at source by the contractor.
A recent freedom of information request made by Unite revealed that 1.067 million workers were paid via the CIS scheme last year. An 8 per cent increase on the previous 12 months. In total 47 per cent of all workers in the industry were employed via CIS.
For two reasons these figures represent a disaster. First, for the workers affected. They don’t receive any employment rights, including the most basic rates such as holiday pay and the right to statutory sick pay. Workers can be sacked without warning, notice or reason. A Unite activist who has spent most of his working life on CIS reports that he has been told more than once to leave a site immediately because “his face didn’t fit” or because he refused to pay a bung to the foreman to work.
The main beneficiaries are the employers who avoid paying employers’ national insurance contributions, worth 13.8 per cent of workers’ earnings, and they also avoid other costs such as holiday pay.
The huge rise in bogus self-employment in construction is also a disaster for the government. In 2014 it introduced policies aimed at reducing bogus self-employment. Under the new rules any worker operating via an engager (an employment agency or payroll company) could not be self-employed and had to be paid by PAYE.
This was not through altruism but because the government realised that the Exchequer was losing billions a year in lost revenue. With bogus self-employment still rising revenue continues to be lost at an astronomical rate.
The agency reforms did not have the hoped-for effect of workers being paid under a standard PAYE format. Overnight a large chunk of the industry transferred agency workers to operating under umbrella companies.
Despite the anodyne name an umbrella company is a perverse employment method. The worker agrees an hourly rate with the agency and is then paid via an umbrella company. By the time they get their payslip, their take home pay in no way reflects the rate they agreed.
The worker for tax purposes becomes both the employer and employee. As well as the normal income tax and employee national insurance contributions the worker also has to pay employer national insurance contributions. In total they are paying an incredible 46 per cent of eligible earnings in deductions.
On top of this, holiday pay is often rolled up into the rate, which means that a small amount of money is allocated for holiday pay each week and when leave is actually taken the worker receives nothing.
If the worker is paying into an auto-enrolment pension, they have to pay both the employee and employer contributions. As contributions increase over the next few years, this will make pensions unaffordable for many.
On top of all these deductions the worker is charged a set amount every week to be paid in this way, usually at least £20 a week.
The government has estimated that there are over 430,000 workers paid in this manner, the majority in construction.
The worker gains nothing out of the arrangement — those who benefit are the real employers who avoid standard employee costs.
As well as the issue of exploitation these forms of employment are undermining the long-term health of the industry. Construction is in the midst of a skills crisis, which Brexit is set to make worse.
For decades the industry has not been training sufficient numbers of apprentices and gaps have been plugged with migrant labour. The fact that no-one wants to employ anyone means that they are not prepared to train anyone either. Unless these issues are tackled skills shortages will increase, projects will be cancelled and jobs will be lost.
Given the huge number of workers affected by bogus self-employment and umbrella companies, it was hoped that Matthew Taylor in his review would have tackled these problems which affect other workers outside construction as well head on.
It remains unclear if Taylor failed to understand the scale of the problem, was told not to tackle tax issues or simply bottled the issue.
What is beyond doubt is that despite indicating that he was aware of a problem, Taylor failed to set out any solutions.
If we are going to tackle the exploitation that occurs through bogus self-employment and umbrella companies, a piecemeal approach will not work.
There is a multi-million pound industry that exists to indemnify bogus self-employment and then creates other perverse forms of employment such as umbrella companies.
To overcome this there needs to be a radical overhaul of not just employment status laws but also the tax system, so that we have two types of worker, the genuine self-employed and employees who are paid under a standard PAYE method.
It is clear the Conservatives have no intention of tackling these issues, as it is not in the interest of their friends in the construction industry.
The challenge for Unite is to ensure that construction workers and others suffering these forms of exploitation understand that these are not the only employment models and that a radical Labour government will introduce reforms based on fairness and workers’ rights.
Gail Cartmail is assistant general secretary of Unite.