The Government should extend minimum wage legislation to protect the UK's 4.8 million self-employed workforce as part of its drive to tackle low pay and insecurity in the modern workforce.
This is the conclusion of a new report by the Resolution Foundation. The study forms part of the Foundation's submission to the Taylor Review on modern employment practices.
Its analysis shows that that while 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%) fell below this threshold, earning less than £310 a week.
The Foundation is warning that firms could use self-employment contracts to avoid paying the legal minimum wage unless the rules are changed. And it says the self-employed will lose out on the introduction of the National Living Wage (NLW).
Many of those in the gig economy as it currently stands are likely to be "workers", an employment status with greater rights than the self-employed. But more enforcement is needed to ensure these workers get the rights to which they are entitled.
For those that are genuinely self-employed, the Foundation is proposing an extension of existing tests in employment law that look at whether a person working at an "average" pace would be able to earn the minimum wage. It says the principle of this test should be applied to self-employed people where the price of their labour is fixed by a firm.
Extending this test would bring most of those who are self-employed in the gig economy and other parts of the self-employed workforce under the protection of the minimum wage for the first time. This new right could benefit thousands of workers including self-employed couriers, minicab drivers, cleaners and hairdressers.
In addition, the report is calling on the Government to tackle low pay and insecurity among the self-employed by:
extending statutory maternity and paternity pay;
extending contributory Jobseekers' Allowance to those who have paid Class 4 NICs at a profit level of £25,000 for two years;
reopening plans to equalise NICs up to the 12% rate that employees pay;
extending employer NICs to price-setting firms that take on self-employed contractors, possibly through a new levy;
scaling back Entrepreneurs' Relief.
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.
"The Government can start by extending minimum wage protections to those self-employed people whose prices are set by a firm. Ministers shouldn't stop there ... 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."
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