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UK – Concerns raised over government’s false self-employment legislation

05 February 2014

The Recruitment and Employment Confederation (REC) has responded to the government’s consultation on onshore intermediaries voicing concerns over whether the proposed legislation will succeed in tackling false self-employment.

Ben Farber, Senior Policy Advisor for the REC, said: “Eliminating false self-employment is a commendable goal and one that compliant recruitment businesses are keen to help achieve. However, the REC is concerned that flaws in the proposed legislation will actually increase the extent of false self-employment, jeopardise UK employment and growth, and put compliant recruitment businesses at risk.”

“False self-employment is a whole supply chain issue and any legislation to address the problem must reflect that fact. The lack of any end-user liability leaves significant scope for avoidance and sets this piece of legislation up to fail,” he added.

During the eight week consultation process, REC members from a range of sectors identified a number of key concerns including:

  • Impact on jobs – as supply chains try to absorb labour cost increases of up to 25%, employment will inevitable suffer. An immediate response from clients will simply be to use fewer staff - do the job of four with three. The cost increases could also threaten the viability of many large scale infrastructure projects where budgets have been set years in advance.
  • Mass avoidance – with no end-user liability or reporting requirement there is nothing to stop clients from engaging with rogue traders at the expense of compliant agencies. Those rogue traders are unlikely to submit to the new reporting requirements and HMRC have admitted there is little they will be able to do in the way of enforcement in such circumstances.
  • Risk to workers – there is a real risk that such avoidance tactics will force lower skilled workers away from decent agencies and into the informal “cash-in-hand” economy, where they could fall victim to exploitation.
  • Missing the revenue target – the government has set an ambitious revenue target of £500 million per year. Aside from headcount reduction and mass avoidance, the other likely outcome of the proposed measures will be an increase in workers operating as limited companies (often referred to as Personal Service Companies of ‘PSCs’) and through PAYE umbrellas.  Both of these scenarios would severely impact on any financial return for the Treasury.

Lewina Farrell, Head of Legal & Professional Services at the REC, commented: "The rush to enact these changes and the lack of proper consultation with business shows the government understands neither the complexity of the problem it is seeking to address, nor the impact of the legislation it has drafted. A delay in the implementation timetable is crucial if compliant agencies are to renegotiate contracts to ensure an equitable distribution of costs, hopefully avoiding pay cuts for workers and other unintended consequences.”

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