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DWP report criticises “bogus self-employment” in gig economy

Employment status continues to hit the headlines with the Work and Pensions Committee releasing their report on the topic.  The report focuses on the imbalances between those with different employment status and highlights “bogus self-employment”.  The primary purpose of the report was to consider what impact the growth of the gig economy is having on the welfare state.  Self-employed individuals contribute far less in the way of National insurance Contributions (NICs) than employees and so inevitably the growth of self-employment challenges the welfare system.

The report

The Committee made a number of key findings in the report:

  • The welfare system is reliant on input from workers through NICs. Historically employees received much more support from the welfare state than self-employed people. With the introduction of the New State Pension the playing field has almost equalised and self-employed individuals are receiving much more support. However, their NICs are far less. NICs contributions should be equalised between the self-employed and employees.
  • Employees are entitled to certain minimum protection to help protect them from hardship and the welfare state from costs. Many businesses are using self-employed workers as cheap labour and avoiding the responsibilities of employment and the extra NICs. This inevitably puts pressure on the welfare state. There should be an assumption of ‘worker’ by default rather than ‘self-employed’ by default. The burden would be on companies if they wish to deviate from this worker assumption and workers would have the employment rights commensurate with this status. Tax status would be unchanged as there is no ‘worker’ status in tax law. Loopholes need to be closed which allow businesses to exploit supposedly self-employed individuals.
  • Self-employed individuals need to be encouraged to save for retirement. Unless action is taken now there are potential grave problems for the welfare state in the future. Tax returns could be reviewed to help incentivise retirement savings.
  • The concept that flexible working is reliant on self-employed status is fiction. Employees can work just as flexibly as those who are self-employed. The true motivation for engaging self-employed workers is profit not flexibility.

Conclusion

The report arguably confirms what many commentators are thinking – “It is clear that current ways of categorising workers are creaking under the weight of the changing economy”. With the Taylor review and the Inquiry in the Future World of Work still underway it will be interesting to see how the recommendations are taken forward.  Although the report states employees can be just as flexible as the self-employed, this is perhaps questionable and depends very much on the nature of the role. The concept of increased NICs from self-employed individuals certainly proved to be controversial and was recently revoked by the Conservative Party as a policy idea. Although the Committee focused on equalising employee/self-employed NICs, perhaps the more significant impact on the welfare state is the absence of employer NICs for the self-employed (a current saving of 13.8%).

The gig economy is growing momentum; whatever the outcome of the general election employment status is certainly going to be on the agenda.

Keep up-to-date with the DWF employment status barometer

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further