In the UK, almost five million people now work in the gig economy. Should they have some of the same rights that employed staff do and should they be auto-enrolled into a pension scheme too?
In the UK, almost five million people now work in the gig economy, where temporary positions are common and organisations contract with independent workers for short-term engagements. But what’s the employment status of these workers? Are they really self-employed? Even if they are self-employed, should they have the benefit of some of the employment rights of the employed and should they be auto-enrolled into a pension scheme?
The employment status of people working in the gig economy hit the headlines in October 2016, when a tribunal declared that drivers working for the cab company, Uber, are not self-employed contractors but employed workers. As such, they are entitled to full employment rights, which include auto-enrolment in an appropriate pension arrangement. The case is almost certain to be appealed and organisations using self-employed contractors will be watching the outcome closely. But even if the tribunal is over turned should they be subject to auto-enrolment in any case?
Meanwhile, questions on the rights and status of self-employed contractors have also been attracting the attention of the Business, Energy and Industrial Strategy (BEIS) Committee and the Work and Pensions Committee. Last year, the BEIS Committee looked into employment practices at Sports Direct. As the company doesn’t seem to need contractors to meet seasonal demand, the Committee wanted to understand whether Sports Direct uses so many in order to avoid the costs associated with employment rights for employed workers.
For its part, the Works and Pensions Committee is considering whether people working in the gig economy should be brought into saving for retirement through auto-enrolment.
Suppose for a moment that the Government decides to extend auto-enrolment to cover the self-employed. Much of the auto-enrolment legislation depends on there being an employer responsible for determining who is a worker, what their qualifying earnings are and whether they should be auto-enrolled. To bring the self-employed into auto-enrolment, the Government will need to either completely rewrite auto-enrolment legislation, or identify an entity that could take on the role of the employer.
In the case of companies like Uber or taskrabbit, there is a central entity that could perform the duties of an employer. But how would the organisation know if an individual had passed the annual earnings threshold to trigger the auto-enrolment duty? And, with minumum contributions payable only on earnings above a lower limit, what proportion of that limit would be applied to earnings with the organisation, particularly if the individual worked for several businesses? The organisation performing the duties of an employer would also need to establish whether a contractor was UK based and within the eligibility criteria for contributions to be paid to a pension arrangement.
Furthermore, would the legislation apply equally to providers of services and providers of products – in essence the difference between drivers providing transport services through Uber or landlords letting properties through Airbnb?
Removing the earnings thresholds for triggering the auto-enrolment duty and calculating minimum contributions would help, as it would then be clear that all earnings would need to be considered for auto-enrolment. But however pension contributions are determined, contractors would need to amend their payment terms. Instead of making full payment to the individual, the contracting organisation would need to split payment between the individual and their pension arrangement. Payment to a pension scheme could be incentivised by a matching contribution from the Government, within financial limits and there would also need to be an option for individuals to opt out.
It’s complex but, where there is a central entity acting as an intermediate between the buyer of services (the organisation) and supplier of services (the contractor), auto-enrolment could work with some tweaks. The intermediary would replace the employer and carry out the employer responsibilities under auto-enrolment.
A similar argument could be used for contractors providing services to corporates as in the case of Sports Direct dealing with some of the issues raised by BEIS and the Work and Pensions Committee.
But what of the traditional self-employed – the plumber or the electrician – who may provide services to thousands of individual customers over the course of their employment. Who would carry out the employer’s duties for this group of people?
A fundamental rewrite of auto-enrolment legislation would be enormously disruptive to employers that have already passed their auto-enrolment staging date. One alternative could be to re-purpose the incoming Lifetime ISAs as a retirement savings vehicle for the self-employed. The upper age limit of 40 for starting a Lifetime ISA would need to be removed, but otherwise the scheme could suit the needs of the self-employed, especially if the Government provided an incentive to save. At least, Lifetime ISAs used in this way would not be a confusing competitor to pensions for those traditionally employed.
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