Time to clamp down on bogus self-employment if we are to prevent the looming pension crisis

Jonathan Greer
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Uber Loses Its Private Hire Licence In London
Uber, it seems, has begun acknowledging that its drivers are not strictly self-employed (Source: Getty)

On the face of it, identifying self-employment should be fairly straight forward. In fact, the definition is the name.

Do you work for yourself? If the answer is yes, then you are self-employed. But what appears as simple question has led to reams of paper and discussions.

We are now reaching an inflection point and it is likely this time next year the dynamics of self-employment will be completely different.

At the moment, we have a treasury consultation looking at off-payroll working, a wide-ranging consultation on employment status, while Uber is appealing against an employment tribunal.

We need to ensure that, as these threads of thinking come together and an inflection point takes place, people are given clarity on their employment status and the benefits that come with it so they can plan appropriately.

The current system means that businesses can get huge cost savings by building a staff of self-employed people. These people are taxed more lightly and businesses do not need to provide them with benefits like pensions, paid sick leave, and insurance.

Uber, it seems, has begun acknowledging that its drivers are not strictly self-employed. As such, they are offering a number of benefits, including sick pay, parental leave, and bereavement payments to European drivers.

But what is noticeably absent from these benefits is pensions, which is sometimes considered one of the most costly.

Under the Pensions Act 2008, every employer with at least one member of staff must enrol their employees into a workplace pension scheme and contribute toward the pension.

This has meant businesses have had to shoulder a number of costs. They must set up a scheme, pay a two per cent contribution for all employees, and pay the ongoing processing.

According to the Pensions Regulator, smaller employers can spend substantial fees for processing of up to £42 per employee per month.

However, while this may be a headache, auto-enrolment has so far been a success. Since its official launch in October 2012, more than 7.5m people have been automatically enrolled into a workplace pension scheme.

And yet, some businesses are getting around assisting staff by incorrectly labelling them as self-employed.

Recent statistics show that most self-employed people have little confidence in their pensions, and almost half (45 per cent) of self-employed workers aged between 35 and 54 have no private pension at all.

Some of these people are not truly self-employed, and so a crackdown on “bogus self-employment” may reduce that percentage substantially. This will clear a path to get a better picture of the savings strategy of the truly self-employed, and what savings mechanisms suit them best.

It is therefore crucial that the government make the most of this turning point – as it will not only impact the employment today, but people’s long term prosperity.

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