Workers fall foul of false self-employment

Martyn Makinson

Martyn Makinson considers the new government regulations designed to prevent false self-employment.

Britain has been dubbed the self-employment capital of western Europe with 4.5 million classed as self-employed, accounting for more than 15% of the labour force.

Many people working in construction are genuinely self-employed, however, UKCG (UK Contractors’ Group) recognises that some are in ‘false self-employment’ and that, under current tax rules, it is extremely difficult for law abiding companies to decide whether somebody is really self employed or should be taxed within PAYE. It is estimated that false self-employment is costing the Exchequer £1.9 billion per annum.

By April 2015, it will also become compulsory for employment agencies to report individuals that are not taxed as employees to HMRC, which has put the entire recruitment industry on alert. This new system burdens recruiters, as they are expected to report comprehensive information under threat of a financial penalty, incurring huge administrative costs and added pressures.

Recruitment companies that contract directly with clients now need to make sure they have satisfactory evidence showing the worker is not subject to supervision, direction or control. Anyone subject to significant control, supervision or direction in relation to their work should be deemed to be employed for tax and employment rights purposes.

There appears to be a lack of understanding for these new government measures across the construction and social housing industry, and this is supported in a recent study by Irwin Mitchell, which found that only a quarter of construction businesses that use temporary agency workers are aware of the new rules.

The rules have not been communicated widely enough and recruiters now have to manage this, putting huge strains on consultants. Recruitment firms should invest time and effort into educating clients of the new measures that deal with bogus self-employment.

The lack of awareness for the rules is worrying for both clients and candidates. Clients who are unaware may fall foul of the regulations, resulting in a penalty. Meanwhile, candidates are losing out as false self-employment is used by employers to evade taxes and engage workers without having to respect their employment rights and entitlements.

False self-employment ultimately disguises the reality of the employment relationship between the main contractor, agency and worker.

Better communication of the laws are being championed across the construction industry, in order to protect other agency candidates and employers.

It is a concern, however, that the trend for false self-employment is spreading to other sectors, and if not dealt with comprehensively and swiftly it will lead to a loss of employment rights to many workers.

Martyn Makinson is managing director of Ionic Recruitment