The government should extend minimum wage legislation to protect some of the UK’s 4.8 million self-employed workforce as part of its drive to tackle low pay and insecurity in the modern workforce, according to a new report published by the Resolution Foundation.
The report forms part of the Resolution Foundation’s submission to the Taylor Review on modern employment practices and sets out a number of proposals to tackle endemic levels of low pay among the self-employed.
Its new analysis shows that that while around in one in five employees are low-paid (earning less than two-thirds of typical weekly earnings), last year around half of the full-time self-employed workforce (49 per cent) fell below this threshold, earning less than £310 a week.
Conor D’Arcy, Policy Analyst at the Resolution Foundation, said:
“The UK’s labour market has been very successful at creating jobs in recent years. However, far too many of those jobs offer very low pay and precious little security.
“This is especially true of the growing army of the self-employed. While many are higher earners who benefit from significant flexibility, around half fall below the low pay earnings threshold of just £310 a week. The government’s upcoming review of the workplace, led by Matthew Taylor, offers the perfect opportunity to tackle the issues of low pay and insecurity head-on.
Furthermore, while the introduction of the National Living Wage (NLW) is set to reduce low pay among employees over the coming years, the self-employed will miss out as they are not entitled to it. The Foundation says that there is a big risk that unless low pay protection rules are changed, firms could use self-employed contracts as a way to avoid paying the legal minimum wage.
The Foundation argues that the first priority to address this challenge is proper enforcement of the existing law. For those in the gig economy, greater enforcement is needed to ensure these workers get the rights to which they are entitled.
For those that are genuinely self-employed, the Foundation’s proposal builds on existing tests in employment law of whether a person working at an ‘average’ pace would be able to earn the minimum wage.
The report says that with most firms already having the information required to carry out this test – such as the typical time and cost involved in completing a task (for example a cab journey or parcel delivery) – it shouldn’t prove too onerous for businesses. It adds that HMRC should oversee enforcement and have their budget and remit extended to reflect this new area of responsibility.
The Foundation says that extending minimum wage protection to some of the self-employed should be part of a wider package of reforms to ensure that all workers have similar rights and responsibilities, whatever their employment status. The current situation, in which many of the UK’s 4.8 million self-employed experience considerable unfair low pay and benefit disadvantages, as well as unjustifiable tax advantages, has no place in a modern workforce.
In addition to extending low pay protection, the report calls on the Taylor Review and the government to tackle low pay and insecurity among the self-employed by extending Statutory Maternity Pay at a cost of up to £82million and Statutory Paternity Pay at a cost of up to £18 million.
“The government can start by extending minimum wage protections to those self-employed people whose prices are set by a firm. This would mean that self-employed people in the gig economy would be given protection against extreme low pay for the first time ever.
“Ministers shouldn’t stop there either. Stronger enforcement to clamp down on bogus self-employment is a prerequisite. But moving to narrow rights, benefits and tax gaps between the self-employed and employees would at last create a level playing field in the labour market. This would help to ensure that people’s employment status was based on the job that they do, rather than on a firm’s willingness to pay the minimum wage or the wish to avoid paying a fair share of tax.”