Opinions
Aftershock

COVID-19 and the self-employed

24 August 2020

This crisis has exposed the challenges that the self-employed and freelancers face and the lack of a safety net to protect them.

Authors
Anna Mowbray
Author

The ranks of the self-employed have swelled in recent years, with more than 5 million self-employed workers across the UK at the end of 2019. Those entering self-employment often cite the increased flexibility as a key reason for their choice to be their own boss.  Coronavirus has only exacerbated the shift, by increasing unemployment and by hastening the decline of a number of large industries and employers. At the same time, many workers trying out new ways of working such, as working from home, means self-employment is becoming an increasingly necessary, as well as attractive, option.

However, many people who start on the path to self-employment are stepping into a world where they aren’t financially protected when life changes. Many people don’t realise that the self-employed are currently not entitled to sick pay or parental leave benefits and miss out on employer pension contributions that would support them in retirement.

Who are the self-employed?

All too often, self-employment is incorrectly conflated with zero hours contracts – or even tax dodging.

In reality, the self-employed are a varied group of hard-working people, including those trying to build up the small businesses that keep our country moving. They also include consultant contractors working on short-term projects for multiple clients, gig economy workers driving us around or delivering our food, partners in small firms, freelance journalists, precariously employed academics, and sole traders.  The self-employed work in all fields, from IT to healthcare, from construction to journalism. The ranks of the self-employed also includes large numbers of disabled people, who opt for the increased flexibility of being their own boss.

Some self-employed people are not there through choice, and ending bogus self-employment is important. Meanwhile, the legitimately self-employed must be supported better. Many people who become self-employed for all the right reasons are taking on too much risk for too little reward, and the government must better support flexible contractors and must offer additional support to small businesses and sole traders.

What needs to be done?

This crisis is a valuable opportunity to enhance the protections that self-employed people receive. To get it right, the government should set up a taskforce to investigate the ways in which our tax, benefits, pension and employment systems can be reformed to work better for the self-employed.  Flexibility should be the key, with policies carefully designed to complement the ways people are working today will do so in the future. There are some obvious places to start.

Support start-ups

When somebody starts a new business, their income can be erratic, with lots of invoices coming in one month, and none the next.  Because of the inflexibility in our social protection system, many find themselves vacillating between earning too much and too little to receive state support. This can push people into poverty and mean that promising small businesses have to fold because their owners cannot afford to keep them afloat. Yet those who are investing in their businesses are a great investment for the government, and supporting people at these challenging times pays off in the long run.

What’s more, the current support system is too rigid and inflexible, leaving many disabled people unable to start businesses for fear of losing the benefits that they need to go about their day to day lives – for example, with the strict limits on the number of hours that can be worked when receiving certain disability allowances. For many, traditional employment is not compatible with managing a disability so, without the option to work for themselves, many people with disabilities are left unable to work at all.  This is an affront to people’s dignity, as it leaves people reliant on benefits in the long run, rather than using them as a safety net as they attempt to earn a living through self-employment.

The government should offer start-up loans for small businesses and must ensure that receipt of these doesn’t negatively affect the entitlement to benefits. In the long run this policy is likely to see the arrival of flourishing businesses who quickly pay back in tax what they receive in support when they need it most.

A safety net that’s fit for purpose

Today, the self-employed pay a lower rate of National Insurance, a small compensation for taking on all the risks that employees are shielded from. If, as predicted, in his Autumn Statement, the Chancellor raises National Insurance contributions for the self-employed, then, the government must step up and offer a social safety net of equivalent robustness to that which employees are entitled. It should include improved access to sick pay, pension entitlement and parental leave and pay.

Sick pay entitlement is especially critical. The self-employed deserve the basic protection that if they are unwell that they should be able to take time to recover without jeopardising their finances. Unfortunately, the current rates of sick pay, just £96 a week, are not sufficient to allow someone to afford to take the time off that they need when they are ill. In a time of pandemic, the importance of sick pay has been highlighted, so that we can self-isolate to protect others and aren’t forced to keep working to stave off poverty – risking the further spread of the virus.  The government must thus increase the rate of statutory sick pay to at least the national minimum wage to realise this possibility.

Furthermore, the government must extend the provision of maternity and paternity leave, maternity pay and parental leave. This would prevent many self-employed people from slipping through the cracks, being unable to spend crucial time bonding with their new infants.

Let’s talk about tax

The government should also scrap the proposed IR35 reforms which are not fit for purpose. The proposed changes will transfer responsibility for determining tax status from self-employed contractors to medium and large firms. Many firms have responded to this by reducing or eliminating their contractor workforce. The reforms will discourage flexibility and will prevent skilled workers from providing their expertise on specific projects. The net effect will be a reduction in innovation, that is sorely needed in this economic crisis, and many self-employed contractors stand to lose thousands as a result of being unfairly treated as employees, despite not sharing the same rights.

Instead, the government should think carefully about finding a better way to harmonise the tax and benefits systems. Currently, there are three categories of workers within employment law (employees, the self-employed, and an intermediate worker category). Yet under tax law, there are only two: the self-employed and employees. As well as confusing, this is unfair — the different rights and benefits that different classes of workers should receive must be clearly set out and explained. If you pay the same amount of tax, you should be protected in the same way by the same safety net.

Protect the Self-employed

The self-employed need long term solutions to address the inequalities they face. This crisis has exposed the challenges that the self-employed and freelancers face and the lack of a safety net to protect them. And, the crisis has also changed the economy and the ways we work for so many- which could lead many more people to consider self-employment. The self-employed will be vital to our national economic recovery and the revival of our local economies, and it’s time their critical contribution is recognised.

 

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