False self-employment: a ticking time bomb?

Chrissi3-300x202The industry is facing tough questions over its use of labour-only subcontractors with terms like “bogus self-employment” and umbrella companies dominating the headlines.

Things have not always been like this, but with the continuation of risk being passed down the supply chain, late payment terms and uncertainty of the recession, subcontractors have adopted any means possible to keep their heads above water.

As a result, they have had to minimise risk and free cash flow wherever possible.

But it is not just the organisations who feel labour-only subcontracting is the right way to go. Many individuals in the industry feel positive about being self-employed – by legal definition, they are not.

Harvey & Behling (2008) determined a number of factors that identified an individual as truly self-employed, which include: defining your own working hours, being able to sub-contract out works and purchasing your own materials.

“Subcontractors have adopted any means possible to keep their heads above water.”

The majority of individuals working on a subcontract basis in the sector fail to achieve these criteria. Of course, while there are some trades, bricklayers in particular, with a long and established history of self-employment, it is important to note that they do satisfy the criteria set by Harvey.

We have an interest in the ones that do not. So why would someone want to be classed as self-employed if they miss out on benefits such as holiday pay, employment rights and employer national insurance contributions?

It is a matter of perception: people like the idea of what self-employment means, even if it doesn’t translate to their actual experience of working in the sector.

For example, I have had this exchange with a number of individuals who identify as self-employed:

Do you like being self-employed? Yes

Why? I can work the hours I want, take time off when I want and leave when I want.

OK, so do you work flexible hours? Well no, I work a 40-hour week, but I don’t have to.

Do you take time off? Yes, I have to put in for holidays a few weeks in advance but they are always accepted.

And can you leave when you want? Yes, I have to give a months’ notice and then I can go.

Would you leave? I doubt it, I’ve been here over 27 years now and I’m quite happy.

These individuals are no better off and receive no benefit from being self-employed. They do not receive holiday pay or other entitlements for protection – provided by law to directly employed people. There is a perception that they are better off, which is at odds with the reality.

This is a problem for individuals and possibly a ticking time bomb for companies.

Not everyone is happy with the false self-employed model. Individuals are increasingly unhappy paying a separate company part of their wages to comply with the law, especially since the HMRC is working hard to reduce the tax breaks that were once an individual’s incentive.

This problem could leave us with a workforce who feel separated from their employers. Ultimately, it is not just about employing someone, rather finding talented individuals who will work hard for you.

People with a choice are making career decisions in other industries that give them basic employment rights. If we continue down this road, as the market picks up, we will find it even harder to find people willing to work in the sector – let alone work hard in it.

So what can we do?

As main contractors look to procure and establish long-term supply chains, we can understand the implications of late payments terms and the effect these have on our subcontractors.

Before the recession, we spent a long time learning how important supply chain management is to our businesses – it is now time to revisit those lessons before the best subcontractors make the choice for you.

For subcontractors, it is time to make some business decisions: you consider the long-term benefits of direct employment alongside the short-term gains of labour-only subcontracting.

“Consider your staff’s identity”

Consider your staff’s identity and employ a stepped approach that educates and supports your staff, providing the choice to remain on a self-employed basis for those who are unhappy with change. Explain the benefits of direct employment and help staff to understand how it affects them.

The CITB Be Fair framework provides a step-by-step guide and includes all the supporting resources you need to create a fair, inclusive and respectful staff environment that will help increase productivity and engagement.

Ensuring employees have the appropriate employment rights is the foundation to improve fairness, inclusion and respect – but it will not provide all the answers.

Once in place, there needs to be opportunities for staff across the business to feel valued and appreciated. This will help ensure that construction is an industry people want to, not have to, work in.

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