Curbing bogus self-employment: Reflections on what next and what more is needed?

December 17, 2019

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by Michelle O’Sullivan, University of Limerick

The Carnegie UK Trust-TASC Ensuring Good Future Jobs essay collection describes many of the key challenges faced by workers in Ireland today, and proposes a series of policy and practice changes to ensure good future jobs. First published on 28 November, as a coordinated response to the Irish Government’s first Future Jobs Strategy, this blog series showcases the contributions by key social partners in Ireland to the collection.

The quality of jobs refers to the impact of the features of the job, particularly contractual aspects and the conditions of work, on workers’ well-being (de Bustillo et al., 2009). In terms of contractual aspects, workers’ employment status has important short- and long-term ramifications for their well-being. Disguised or bogus self-employment (BSE) involves the deliberate misclassification of workers as self-employed when the characteristics of their employment warrant a classification of “employee”. In terms of the quality of jobs, BSE is associated with higher levels of risk, insecurity and long or irregular working hours for workers (Broughton et al., 2016). Workers experience greater risk because they have less access to employment rights protection, collective bargaining representation, union-negotiated pay rates, occupational pensions and social welfare payments. Sectors identified as having BSE in Ireland include construction, food processing, IT, finance, transport, the creative arts and aviation as well as so-called ‘gig’ companies, particularly in food delivery.

As well as having negative outcomes for workers, poor quality jobs are usually also unsustainable for industries and the state. Organisations with BSE undermine other organisations who incur the costs associated with hiring employees in terms of pay, employment rights and social insurance contributions. Organisations’ use of BSE can also reduce their incentive to train or upskill workers, diminishing the future productive capacity of an industry (Wickham and Bobek, 2016). The state suffers from reduced income, losing 30–45 per cent of tax/social insurance receipts under a self-employment arrangement when compared to a standard employment arrangement (Department of Finance/Department of Employment Affairs and Social Protection, 2018). It is this context that the Irish Congress of Trade Unions declared that “bogus self-employment cheats us all”.

There are a number of challenges facing policy makers regarding BSE. One challenge is the lack of statistical data available to identify the extent of BSE. By its nature, it is extremely difficult to capture its pervasiveness through proxy indicators can be used such as identifying the proportion of self-employed without employees (so-called ‘own account self-employed’) as a proportion of employment in a sector.

A second challenge involves legal issues over identifying the correct employment status of an individual. Legal disputes between workers and organisations over employment status continue despite long-established legal tests and government guidelines. Disputes and claims over BSE are decided by a state agency or civil court, which can be a time-consuming and sometimes expensive process. Relatedly, deciphering employment status has become more difficult because of the increasing complexity in employment relationships. For example, intermediary companies connecting employers and workers are sometimes created to disguise an employer-employee relationship.

A third challenge concerns the incentives for BSE. Employers are incentivised to engage in BSE because it reduces their obligations to those workers under legal, tax and social welfare systems. Classifying workers as self-employed also offers organisations greater labour flexibility as such workers can be “hired and fired” easily. It has been acknowledged too that some workers may accept or support being classified as self-employed because it can lead to reduced taxation costs for them. In addition, it is administratively easy for employers to classify workers as self-employed and the Government has been criticised for facilitating this particularly in construction, where workers may not even be aware of their self-employed status (Wickham and Bobek, 2016).

 

A fourth challenge is a sociological one, concerning power relations in employment. Workers are generally in an unequal, subordinate relationship with an employer and, in the absence of the collective power of unions in a workplace, they can feel obligated to accept the status of self-employment to get any work.

So, what should be done to address BSE and improve the quality of jobs? Policy makers have recognised that the issue must be tackled and have introduced or proposed a number of legislative measures. The Competition (Amendment) Act 2017 allows trade unions the opportunity to have a group of workers prescribed as “false self-employed” or “fully dependent self-employed” for collective bargaining purposes and three groups of workers came immediately under the legislation’s remit: voice-over actors, session musicians and freelance journalists. More recently, opposition parties have proposed three legislative bills on BSE but the Government has signalled its intention to introduce its own measures, which reportedly include revising guidelines on determining the employment status of individuals, establishing a unit to investigate claims of BSE, increasing fines on employers who engage in BSE, and introducing anti-victimisation protections for workers.

While the full detail of the Government’s plans are not yet available, there are a number of additional recommendations that can be made in regard to BSE. First, we need to consider how measures can address the incentives for BSE which would be more effective than measures aimed at tackling BSE after it has occurred. Policy measures in this regard include reducing the gap in social insurance contributions between the self-employed and employees, as recommended by a government departmental working group in 2018. In addition, the Government can also cease facilitating BSE by requiring employers to satisfy authorities that a worker meets the criteria of genuine self-employment and by ensuring workers are consulted in the classification process. Second, there should be a focus on the employment rights of workers given the considerable legal debate internationally about how legal systems can keep pace with emerging forms of employment.

We need to think more systematically to ensure all persons who work can access fair terms and conditions. An alternative to the current binary employee/self-employed categorisation would be to classify all persons who “personally provide work or a service” as workers, with a range of employment rights, but this should be not used as an opportunity to downgrade employment rights generally (see O’Sullivan et al., 2015). A third recommendation concerns the resolution of claims of BSE. It is unclear what role the Governments’ proposed new unit will play given that, at present, three state bodies have, to varying degrees, some role in relation to employment status disputes – the Department of Employment Affairs and Social Protection, the Revenue Commissioners, and the Workplace Relations Commission. A streamlined and speedy system for determining employment status in contested cases would be welcome. Finally, Government policy should support stronger worker rights in relation to unionisation and collective bargaining, ensuring that workers’ collective power prevents BSE and enforces employment rights. In the absence of strong unions, greater responsibility rests with the state to address BSE, requiring it to introduce strong policy measures and invest significant resources than would otherwise be necessary.