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.

False self-employment in the UK construction industry – why tax regulations are putting the horse before the cart.

There’s been a lot of work by the government in recent years looking at false self-employment in the UK construction sector.  The driver for this work has always been that the government misses News Stories 17-03-2014out on, somewhere in the region of, £1.7 billion in revenue and therefore clamping down on what is perceived as a ‘fraudulent bunch’ is seen as the solution.

For those that don’t know, false self-employment is where someone is classed as self-employed and therefore has all the risk associated with running a business, but does not have any of the gains. For example, they would not be able to have someone else do their work on their behalf, nor could they decide whether or not to undertake work, determine their own hours or negotiate separate payments. What makes this situation damaging is that they also don’t have the protection afforded to the employed workforce with regards to holiday pay, sick pay, employment rights or retirement pay.

In 2009, the last time the government acted on this issue, it could be argued that they succeeded in doing little more than making the whole situation a lot worse. Instead of protecting the workforce it succeeded in starting up a multi-million pound industry that charged individuals £15 – £25 pound per week extra.

UCATT has done some great work around this area and I would urge you to read it.

For now though, I want to talk about how this situation affects individuals and how, in turn, that is impacting on the sector.

In our work with the industry we have identified three main types of false self-employed people (remember – if you are self-employed and have the opportunity to turn down work, fix your own price or subcontract your works, we are NOT talking about you): –

 

“It’s just the way it is, you can’t change the sector”

Many people are resigned to the fact that this is just how the industry operates. Quite often these individuals are unhappy with the situation but don’t see another alternative and so accept it.

“It’s ridiculous; I don’t think I’ll be in the industry much longer”

Many new entrants to the industry expect something better, and are often appalled when they learn that they will be taking a reduction on an already low wage. Unfortunately, many of these individuals already have plans to ‘up sticks’ to a different sector once we come out of recession.  I find it rather worrying that we are losing people who have the capability of identifying negative employment practice – surely these should be people we fight to keep?!

“I like being self-employed, it gives me more flexibility”

‘Hegemony’ is a useful word – it means oppression by consent, and whilst I believe it will upset a few people to levy it here, it needs to be said. Often the problem with false self-employment is that people do not really understand what it means. There is something psychologically satisfying about being self-employed – I won’t deny that for a second. We have to start appreciating that a large part of the reason we now have so much false self-employment is because there are a large group of people that believe this is what is best.

This conversation we had with a roofer explains the situation: –

ME: Are you employed or self-employed?

Roofer: Self-employed.

ME: How long have you worked with just this company?

Roofer: Over 25 years.

ME: Would you like to be fully employed?

Roofer: No I like knowing I can leave when I want

ME: Do you have to give notice at the moment?

Roofer: Yes – one month.

This is a conversation that we have had many times. What it highlights to us is that there is a misunderstanding around what it really means to be employed by a company. We agree that companies also need to be educated to see the longer term benefits of an employed workforce, but we do need to understand that over the years a pride and identity has formed around the idea of a self-employed status – even if that not what it really is.

Why should we care? If we are not bothered about basic employment rights perhaps then we should consider the bottom line – if current practices are driving away new entrants who are cute enough to see past the hegemony, we are often left with only those who have no other choice than to accept these terms. This means that we are driving the industry towards an apathetic and unengaged workforce which will affect your bottom line. With regards to diversity, false self-employment is much more suited to the average white male for a number of reasons (which if you request it we will detail for you), so we will likely not move any further with this agenda either.

The solution? Education helps people to understand the real benefits by showing bottom line figures of how much better individuals would be over a year, how much companies would have to gain over 3 years and what the sector could look like if a return to employment was something we adopted across the sector. I know transient labour is an issue, but that is not an excuse for keeping all trade staff as self-employed, especially if they have worked solely for one company for over 3 years.

The industry has a great power in that it can make people find acceptability and pride in even the most dire of situations. I will admit to falling into similar traps myself, such as believing that 70 hour working weeks (without overtime) were acceptable, or that in order to prove myself I should be able to accept any behaviour directed at me. I would suggest that if we changed the way we treated people in the industry we would find that we empowered, educated and protected our workforce which would benefit all parties immensely.