Darren was taken on by an employment agency in 2010 to work as a labourer on a major hospital building project in Scotland for which he was paid slightly less than £8 per hour.

The agency took his bank details and told him that the payroll company who were paying him would deduct £22 per week from his wages. He didn’t get any holiday pay or sick pay.

It was almost a year later that Darren found out from other workers on the site that he was in fact being treated as self-employed. He insists that he had never registered as such.
Darren’s story is far from unusual in the construction industry and is something that UCATT officials deal with on a regular basis.

False self-employment has been a problem in the construction industry for decades. In recent years there has been a noticeable change in how the problem manifests itself. Rather than separate companies operating false self-employment, a multi-million pound industry has been created to try to legitimise the practice.

As UCATT’s new report The Great Payroll Scandal details, much of this codifying of false self-employment is occurring through payroll companies.

Workers are falsely self-employed through payroll companies in two ways. Firstly, when workers first start a new contract, often via an employment agency, they are given the option of working via a payroll company or not getting work, as Darren was. Alternatively, a worker who has been working for a company is transferred to a payroll company, on occasion without redundancy or notice periods being paid.

The payroll company’s function is to get the worker to sign a contract to say they are self-employed. The payroll company then takes responsibility for payments to the worker. In a further twist, in most cases the payroll company’s charges (usually £15-£25 a week) are deducted from the worker’s pay.

The largest payroll company Hudson Contracts claims to have over 117,000 “freelance operatives” on its books.

Falsely self-employed workers can be sacked at a moment’s notice, don’t receive holiday or sick pay and don’t have a pension. The falsely self-employed are also entitled to fewer benefits, are not protected by the minimum wage and do not have access to employment tribunals.

The main winner is the employer who avoids paying Employers’ National Insurance Contributions, which are 13.8% of each worker’s wage. The falsely self-employed worker pays a slightly lower level of national insurance contributions and can also make an end of year tax claim for “expenses”.

UCATT calculates that false self-employment in the construction industry is costing the Treasury £1.9 billion per annum in lost revenue, of which £1.2 billion is through employers avoiding paying National Insurance Contributions.

False self-employment is especially high in construction due to the Construction Industry Scheme (CIS), a stand-alone tax scheme for the industry. Workers paying tax via CIS are considered to be self-employed but are taxed 20% of their earnings at source; workers can then claim a tax rebate.

The recession has resulted in a decline in the number of construction workers, yet the number of falsely self-employed workers has actually increased. The report shows that there are now 770,000 workers being paid via CIS.

Employment status isn’t a matter of choice workers cannot choose to be self-employed. Despite the number of falsely self-employed workers increasing, the number of enforcement reviews regarding employment status being undertaken by the HMRC has more than halved in the last two years.

False self-employment has serious consequences for the construction industry beyond the denial of employment rights. Companies using false self-employed workers tend to be less productive as workers will not work so hard on an assignment when they know that they will be let go when it is finished.

It plays a major role in undermining training in construction. Companies who don’t employ any workers, are highly unlikely to offer training, as they do not possess staff to do the training and don’t want to invest in staff they will not have an on-going relationship with. The endemic nature of false self-employment in construction and the short term thinking that it generates, is a major factor in why apprentice numbers were falling even when the construction industry was booming.

False self-employment also has serious implications for site safety. Sites which use false self-employment often have higher accident rates. These sites tend not to have independent safety reps who play a major role in reducing accidents. They also have a higher turnover of staff so that safety messages are lost, not heard or fragmented. Also the fact that you can be fired without warning means that a falsely self-employed worker is far less likely to raise safety concerns.

UCATT’s report proposes four simple measures which can help end false self-employment in construction.

  • 1. Abolish CIS and make genuinely self-employed construction workers responsible for their own tax
  • 2. All construction workers should be deemed to be employees unless they meet strict criteria to prove otherwise
  • 3. The remit of the Gangmasters Licensing Authority should be extended to include construction, to drive out rogue employers
  • 4. The bar set by the HMRC for the criminal prosecution of labour providers who break the law should be reduced


Steve Murphy is General Secretary of construction union UCATT

End False Self-Employment in Construction Industry
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