Leaks from a Panamanian law firm have felled one prime minister, wobbled another and focused attention on the tax arrangements of the famous and infamous, but there is another tax and benefits scandal going on right under our noses. Away from offshore havens and the ultra-wealthy, false or bogus self-employment remains a far more widespread and extremely costly problem.
The ranks of the self-employed have increased considerably in recent years. Since 2015, around 15% of working people in the UK declared that they worked for themselves. But an image of a go-getting, independent and entrepreneurial workforce needs to be taken with a pinch of salt. Recent research by the Citizens Advice Bureau suggested that around 460,000 people might be “bogusly self-employed”, where firms hire people as contractors rather than employees to avoid paying the minimum wage, National Insurance, sick pay, holiday pay and pension contributions.
The result? Workers suffer because money that was previously paid to them is transferred to the coffers of the business and then often on to shareholders. Society suffers because business and the new ranks of the self-employed pay less tax. HMRC estimates that it has lost £430m as a result of unpaid tax related directly to ambiguity in employment status. In Ireland the figure is estimated to be €650m (£520m) in the construction sector alone.
A downside for employers?
Bogus self-employment isn’t new but it is becoming more prevalent. In the 1990s, bogus self-employment was labelled as disguised wage labour, tying people to a small number of potential employers. But despite the apparent cost savings for businesses, this form of employment has drawbacks for them too.
The main problem for business is that workers often respond to the new precariousness of their employment with highly dysfunctional behaviour. If the employer doesn’t offer commitment and good pay and working conditions, employees respond in kind. One recent expose by Channel 4’s Dispatches documented how pressure and precarity of bogus self-employment can inspire employee behaviours that are extremely damaging to the brand.
If the self-employed worker is customer-facing, the potential damage can be severe. This is particularly the case if workers engage in what has been referred to as “emotional misbehaviour”, where they respond to customers in unfriendly and non-service oriented ways.
In an era of social media, if a bad service encounter “goes viral”, the ramifications for business can be significant.
So what is the solution for the customer facing firm that has few scruples about conditions of work? Our research has identified a new form of bogus self-employment that helps businesses to resolve the problems of diminishing worker commitment.
We have labelled this new form of work relationship as “neo-villeiny” in that it reflects the defining features of medieval villeiny. The medieval villein was a serf, bonded to the landlord and subject to rent in order to work the lord’s land. For this, the villein was guaranteed no income.
In today’s work environment, the neo-villein is exemplified by the growing ranks of self-employed personal trainers in the fitness industry. These workers are bonded to the fitness centre in which they operate because they require access to fitness equipment and, more importantly, to the members who are potential clients. The personal trainers must pay a rent (in cash and/or in kind) to the fitness centre. This payment does not guarantee any income, of course, but only provides the potential to attract clients, thereby generating income.
In order to attract clients, self-employed personal trainers engage in extensive unpaid and speculative work that is highly beneficial to the fitness centre. This includes assisting and advising members and even basic maintenance and cleaning. This is all done in the hope of making a connection with a member who consequently then becomes a client.
While apparently being commercially valuable to the personal trainers, their activities invariably benefit the fitness centre more.
One of the attractions of self-employment to formerly employed fitness trainers is that it promises autonomy, especially around working hours. But the self-employed personal trainer has very good reason to “choose” long hours. To succeed, they must have an extensive presence in the fitness centre and they inevitably end up working long hours to enhance their presence and win clients.
As a result the fitness centre has a constant and reliable “worker” with few costs involved, thus resolving the problem of bogus-self employed workers’ low commitment. Moreover, because these workers have autonomy and complete discretion over the hours that they work – a key characteristic of self-employment – the fitness centre is less likely to be the subject of scrutiny by the Treasury.
Questionable arrangements also exist elsewhere. Self-employed airline pilots who work for a single airline, for example, have no control over the hours that they work and are penalised if they fail to provide the airline with a sufficiently long “notice period”.
The government must address bogus self-employment, in all its forms. This neo-villeiny is an ominous development for those in the service sector whose work is increasingly commission based. Although it may not have the headline-grabbing immediacy of the latest tax dodging revelations, it is costing us all.