The life of a freelancer can be a good one – freedom, flexibility and the power to pursue varied opportunities are just three advantages that have persuaded a record number of people (including me) to take the leap into self-employment. The number has risen to 4.3 million in this country and, soon enough, freelancers will outnumber those working in the public sector.
So why is the so-called “gig economy” ringing alarm bells for those who care about workers’ rights, fair business practice and young people’s prospects?
Is it because the average pay of freelancers is heading due south? According to the Resolution Foundation, freelance earnings dived in the aftermath of the financial crash and although they have recovered to around £240 a week, this still 15 per cent lower than in 1994 and £60 less than in 2001/2002.
Well, freelance pay is an issue but it isn’t necessarily our bete noire. Let’s face it, full-time wages haven’t exactly raced ahead in recent decades. The cost of living will also keep on rising for everyone, and the consensus right now is that inflation is likely to accelerate while we have a weaker pound post-Brexit.
None of this is really stopping people going freelance, though admittedly many do so through necessity due to difficulties obtaining full-time work or the need to look after children or elderly relatives. Resourceful entrepreneurs submitting their tax through self-assessment can benefit greatly from allowances for work expenses and they avoid the blunt PAYE system, which deducts tax at source for full-time workers.
Besides, freelance earnings can also vary tremendously depending on which sector you work in and whether you’re a “knowledge” worker or not. This is why someone like Rob Percival, a self-employed tutor on the site Udemy, has managed to earn more than £1 million by teaching web development (my story for the Times discusses this in depth), while drivers for the likes of Uber and Deliveroo are having to go to court to get a fairer working deal (a tribunal decided in late October that those drivers were entitled to be treated as proper employees).
So are we worried because we have far less claim to the rights enjoyed by full-time employees? Automatic pension provision (unless refused by the employee), maternity/paternity leave and sick pay are just some of the ways that companies look after their workers, and while these benefits may differ in generosity depending on the firm, they are all a legal requirement.
However, self-employed people can take care of themselves by taking out a private pension, an income protection policy and saving what they can (even if they don’t!) Many self-employed people accept the pay off for having fewer benefits, no guarantee of work and (possibly) lower pay; the fact they can dictate the nature of their work outweighs those downsides.
No…what really grinds my gears is a nasty trick being perpetrated by an increasing number of companies who are trying to avoid paying their legal share of tax and benefits. Many firms are now operating what I like to call the maxi-hours contract. It seems quite similar to the more well-known zero hours contract, where there is no obligation to provide a minimum number of hours for workers, who are also at liberty to turn down work offered. That seems like a positively good deal compared to the maxi hours contract. Here, companies are luring freelance workers into effectively full-time roles. Freelancers are pressurised to accept eight, ten, maybe even twelve hour working days, five days a week.
There is no definite end date for this full-time work; it ends up being extended bit by bit while workers get hooked on the higher pay than they’re used to and the (temporary) job security. The workers are pressurised to accept an “all-or-nothing” deal where there is little room for negotiation amid (justified) fear that someone more desperate will happily take the deal if they don’t.
Except this scenario is the worst of all worlds for freelancers; they may start incurring greater tax liabilities as a result of higher earnings but do not necessarily have the same rights, benefits or guarantee of continued work as full-time employees. In fact, the company can drop you like a hot potato, having sucked you dry for months on end, leaving you with no recourse to legal action and worst off than before you started because you’ve neglected all your other sources of income (vital for a sustainable freelance career in the long-term) and rendered you entirely dependant on one company for your earnings.
The company, in the meantime, has had its cake and eaten it – getting all the benefits of a fully paid-up employee without having to pay national insurance contributions. Employers do have to enrol you into a pension scheme but only if they pay you over £10,000 a year – and since there is no obligation to pay you anymore than that, what’s to stop them asking for what they can get away with? And should you fall ill or become pregnant? Oh well, you can take care of that yourself, we don’t have any obligations to you. Should we decide we don’t like you anymore, we let you go without fear that you’ve got grounds to take us to an industrial tribunal.
Companies can get away with this so long as they don’t provide a contract. Of course, there is a hybrid between self-employed and full-time. Contract workers at least have some rules set down in black and white, although these can also be vague as to allow loose interpretation. What’s worse is when companies take on casual workers who don’t sign any contract whatsoever.
It’s crystal clear this is wrong. If you want someone to work for you full-time, fine, but you treat them legally and fairly. That should be the deal. If you want a freelancer, great, but respect their rights and freedoms – to do otherwise is unethical.
Sadly, we now have a panoply of companies who think they’ve found an ingenious loop hole that allows them to cut their costs, hanging workers (and the taxman) out to dry. They have chosen freelancers specifically to exploit because we are quite possibly the most vulnerable section of the workforce; out there on our own, unlikely to be unionised or to have the resources and the confidence to fight bad practice for fear we’ll gain a reputation for being “difficult”. And reputation is everything for freelancers.
So what’s being done about it?
Theresa May announced that she would crack down on the huge numbers of self-employed workers being wrongly classified and deprived of benefits, rights and options.
This has led HMRC to announce that it will set up a specialist unit to hunt down companies who bend the rules. They will be “fined 100 per cent of the tax they’re owed”.
How good to know. For the rest of us, it what’s known as paying the tax you owe, and most of us don’t have a choice in the matter (unless we are Philip Green, Gary Barlow or Jimmy Carr).
The Young Money Blog will be flagging up this issue more in the coming weeks and months, keeping it at the top of our agenda so that more people are aware of the maxi hours phenomenon.
We hope this will help to pile on pressure and ensure self-employed workers have their voice heard.