Steve Murphy, General Secretary of construction union UCATT calls on the government to tackle the issue of false self-employment in the construction industry.
Figures recently produced by the Office for National Statistics reveal that 43% of the construction industry is self-employed, a far higher percentage than in other European countries.
Much of this self-employment is false. Workers are registered as self-employed but have all the characteristics but none of the rights of an employee.
In UCATT’s recent publication The Great Payroll Scandal it was estimated that false self-employment in construction was costing the Exchequer just under £2 billion a year in lost revenues. The principal beneficiaries are construction companies who save 13.8 per cent per worker, by not paying employers’ National Insurance Contributions.
Workers are denied holiday, sick pay, pension payments and can be sacked at a moment’s notice.
Sites using false self-employment tend to have higher injury rates, a major concern given that construction is the most dangerous industry in the UK. They are unlikely to have trade union safety reps; the workforce is more transient meaning safety messages are lost and workers are scared of raising safety concerns for fear of dismissal.
False self-employment severely affects training. Apprenticeship numbers in the industry declined by over 14% last year and were falling even when construction was booming. Companies who don’t employ any workers, will not invest in training the workers of the future. This will create serious skill shortages.
The major driver in false self-employment is the Construction Industry Certification Scheme a standalone tax scheme for the industry. Unlike other forms of self-employment, workers are taxed at source. They pay a slightly lower level of NICs and are entitled to make an end of year self-assessment tax claim.
The nature of false self-employment is changing. Rather than individual companies undertaking false self-employment, it has become more sophisticated. There is now a multi-million pound industry which seeks to indemnify companies using falsely self-employed workers, from the HM Revenue & Customs.
The clearest example of this is payroll companies. A worker signs a self-employed contract with a payroll company but still works directly for another company. The payroll company’s only role is to process the worker’s wages, for which the worker is deducted £15-£25 a week from their pay. Although the worker is in reality working directly for a company, they are denied all employment rights.
There has been a huge increase in payroll companies in recent years. The largest, Hudson Contract, claims to have over 120,000 “freelance builders” on their books.
The previous Labour Government was considering introducing “deeming” to tackle this problem. Under their proposals all construction workers would be deemed as employees for tax purposes, unless they met three distinct criteria that; they provided their own materials, they recruited other workers or they provided their own major equipment.
UCATT welcomed these proposals as a first step but believed they should have gone further and guaranteed “deemed” workers employment rights. The Conservative-led Government failed to progress deeming.
In the last 12 months Labour has begun to investigate false self-employment and is conducting an inquiry into the problem. It is hoped that proposals emanating from that inquiry will be included in Labour’s manifesto.
Despite the Government’s tough talk about cracking down on tax dodgers, and their calls for everyone to pay their fair share, it would be a major surprise if George Osborne acted on false self-employment in next month’s budget.