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12. Exempting the self-employed from health and safety law
[ch 12: pages 198-201]In March 2015, both Houses of Parliament agreed the text of the Deregulation Bill. The Bill was to have scrapped health and safety rules for self-employed workers working outside a list of “prescribed activities” (see below), formally exempting 800,000 people from health and safety regulation.
Following intense lobbying by trade unions and safety organisations, the House of Lords passed a reworked government amendment to the Bill dealing with self-employment. The Department for Work and Pensions (DWP) explained in its March 2015 report, A final progress report on implementation of health and safety reforms, that the passage of the Deregulation Act 2015 now “provides the next government with the means to exempt some 1.8 million self-employed jobs in occupations that present no potential risk to others from health and safety law.”
This means that, in addition to those working in the list of activities proposed in a 2014 Health and Safety Executive (HSE) consultation, other self-employed who pose a risk to others may continue to have health and safety duties, and may not be exempted, as originally planned.
The HSE proposals defined self-employed people who would continue to have duties under Section 3(2) of the Health and Safety at Work etc Act 1974 (HSWA), as those undertaking activities on a list of prescribed activities:
• that have high rates of injuries and/or fatalities, such as agriculture;
• where there is a significant risk to members of the public, for example fairground attractions;
• where there is the potential for mass fatalities, such as explosives; and
• where there is a European Union obligation to retain the general duty on self-employed persons, for example at temporary or mobile construction sites.
While welcoming the concession, both the TUC and the safety organisation IOSH criticised the clause included in the final Act. IOSH says it is “unnecessary, unhelpful and unwise” while the TUC called it a “mess” and a recipe for “confusion and uncertainty”.
The regulations cannot come into effect until approved by both houses of parliament. The TUC called on the incoming Tory government to reverse the proposal in its entirety by amending the Health and Safety at Work Act back to its previous, simple wording.
The DWP report is available online at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/415692/final-progress-report-h-and-s-reform.pdf
The background to the change is the 2011 Löfstedt report, Reclaiming health and safety for all. In the report, Professor Ragnar Löfstedt recommended “exempting from health and safety law, those self-employed whose work activities pose no potential risk of harm to others.”
The coalition government used this recommendation to try to exempt all self-employed people from health and safety legislation apart from those on the “prescribed list” of occupations.
Under Löfstedt’s original proposal, most self-employed people would have retained their health and safety duties, but if the list of exemptions suggested by the HSE had been accepted, many self-employed people, including those working in potentially hazardous occupations would have been exempt.
The HSE’s own list of professions that would no longer have safety duties included metalworkers and maintenance fitters, motor mechanics, HGV drivers, furniture makers and cooks.
The list prompted Löfstedt to write to the parliamentary committee examining the plans to warn them the proposals went far beyond his intentions. TUC head of health and safety, Hugh Robertson, said the proposed list of exemptions was so far away from Löfstedt’s original proposal it would make self-employed people spend more, not less, on consultants to clarify their status. In its submission to the HSE’s consultation, general union Unite provided statistics which revealed that being self-employed can actually make work more dangerous saying: “Self-employed people are more than twice as likely to be killed than employees. There is a fatality rate of 1.2 per 100,000 for the self-employed as against 0.5 per 100,000 for employees. Self-employment is more common in many of the most hazardous industries, including construction and agriculture. Much of that self-employment is bogus” (see box below).
False self-employment
False self-employment is used by many employers, in the construction industry particularly but not exclusively, to evade taxes and engage workers without having to respect employment rights and entitlements such as holiday pay, sick pay and pensions. Construction union UCATT argues that sites where workers are directly employed rather than being falsely self-employed are safer: “Workers are better organised, safety laws are more likely to be properly observed and there is a stronger likelihood of independent safety reps working on sites.”
The union highlights the fact that direct employment and proper engagement with trade unions about safety was the primary reason why London delivered a safe Olympics. London was the first ever Olympic Games to have been built without a single construction fatality.
UCATT says false self-employment is “undoubtedly, the biggest employment rights challenge in construction.” Today, the union estimates that over 50% of those working in the industry are falsely self-employed and it identifies the CIS scheme as the main facilitator of false self-employment. The scheme is a stand-alone tax scheme for the industry. Workers paying tax via CIS are considered to be self-employed but are taxed 20% of their earnings at source; workers can then claim a tax rebate. It allows companies to deduct tax at source and avoid employing workers directly.
UCATT’s 2012 report, The great payroll scandal, exposed an explosion in the use of intermediaries, including employment agencies and payroll companies, in construction. The report highlighted abusive practices aimed at avoiding tax, national insurance and employment liabilities through the use of false self-employment. In 2013, a similar report, The great rail payroll rip-off, focused on false self-employment in the railway infrastructure and maintenance sector. The report, by railworkers’ union RMT, estimated that around 67,000 out of 88,000 personal track safety cardholders (76%) were not directly employed by Network Rail.
Before April 2014, HMRC could only compel employment agencies to deduct tax and national insurance from the earnings of agency workers at source (PAYE) where there was a contractual obligation to provide personal service. CIS payroll companies and agencies took advantage of this rule by ensuring that workers were engaged on written contracts that did not require personal service. However, as already indicated, in reality many of these workers were not genuinely self-employed.
Where several intermediaries are involved, liability for the tax and national insurance will lie with whichever company holds the contract with the hirer/end user.
The agency can only pay gross without deducting NICs if it can prove that there is no supervision, direction or control of the worker by any person (in other words, if it can show that the worker is genuinely self-employed). An agency that cannot show this must operate PAYE. Agencies must also report quarterly to HMRC, providing details of any workers who are not subject to PAYE/NICs and the reason why tax is not being deducted.
HMRC has produced guidance as to what it means by “supervision, direction or control”.
In April 2014, HMRC changed the rules. From that date, where any worker provides personal services, or is involved in providing personal services to a third party, under arrangements in which an agency is involved, PAYE tax and NICs must be deducted at source. The agency will be treated as the employer.
Initially, unions cautiously welcomed this rule change as a step towards stamping out false self-employment. However, as pilots’ union BALPA told the House of Lords Select Committee: “In our experience, where legislation has been introduced or updated in the past in such scenarios, the end client, in collusion with the onshore employment agency, simply changes the structure of the arrangement in order to avoid their PAYE and NIC responsibilities.”
Predictably, the changes have led to fresh abuses, in particular a rise in the use of “umbrella companies”. These are companies inserted in between the worker and the employment business, so that the employment business can avoid responsibility for national insurance.