Martyn Makinson, Managing Director of Ionic Recruitment, considers the new government regulations designed to prevent false self-employment, and explains why Ionic is championing for better communication of the rules.
“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 not ‘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.
“Since April 2014, the government has introduced new legislative rules to clamp down on false self-employment. Recruitment agencies are now required to ensure all workers supplied to a business, and who no longer pass HMRC’s test for being self-employed, are treated as full employees, and added to payroll appropriately.
“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.
“At Ionic, we have observed 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. Ionic has already invested time and effort into educating its 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.
“Ionic has gone one step further to protect clients and candidates. As of 1st April 2014, we do not have any candidates classed as ‘self employed’ on our systems, ensuring that we remain legally compliant at all times. By avoiding false self-employment, our clients are confident in knowing that they are fully compliant, while candidates can rest safe in the knowledge that they will receive their full employment entitlements.
“We are now championing better communication of the laws across the construction industry, in order to protect other agency candidates and employers. Our concern is 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.”