False self-employment in construction industry 'robbing Treasury of £1.9bn'
Construction firms are increasingly using payroll companies to "codify false self-employment" in the industry, robbing the Treasury of around £1.9bn a year and leaving workers without even the most basic of employment rights, according to a new report.
The study, the Great Payroll Scandal, has been commissioned by construction union Ucatt.
It claims that workers are forced to sign contracts with payroll companies in order to obtain work. While in reality the worker is an employee for the construction company, they are officially classed as self-employed. This means they can be sacked without warning, do not receive holiday or sick pay, have no pension provision and are denied access to employment tribunals.
The report claims many of these activities are in breach of Government tax rules, but they are "openly promoted by payroll companies on their websites and in promotional literature".
"To add insult to injury, the worker has the payroll company's charge (usually between £10-£25 per week) taken directly from their wages," it adds.
Ucatt estimates that of the £1.9bn cost of the taxpayer, construction companies are saving around £1.2bn a year by avoiding paying employers' national insurance contributions at a rate of 13.8 per cent per worker.
Yet despite the increasing use of payroll companies to create false self-employment - as well as evidence that the practices are spreading to other industries where the use of temporary workers is common - there is "little sign" of a Government crackdown.
Indeed, figures from HM Revenue & Customs (HMRC) obtained by Ucatt under a Freedom of Information request show that the number of employer compliance reviews to check on employment status is actually falling, dropping from 1,205 in 2009-10 to 454 in 2010-11 and just 433 in 2011-12.
Steve Murphy, general secretary of Ucatt, said it is "simply unforgiveable" that enforcement action is being reduced given the cost of false self-employment to taxpayers.
In his foreword to the report, he wrote: "With the publication of this comprehensive exposé, there is no longer any excuse for the Government, the HMRC or any major political party to claim that they don't understand the problem of false self-employment and payroll companies.
"I hope that this excellent report is used to lobby MPs and starts changing the construction industry for the better. In the 21st century it is essential that workers are treated fairly and decently and that employers are no longer able to artificially boost their profits through the long-term and systematic denial of workers' rights."