Employee or self-employed, does it matter? Definitely. The Government has previously attempted to address the ongoing problem of false self-employment in the construction industry through compliance measures but these have been unsuccessful. The Government is now of the view that introducing legislation is the best way forward and it recently issued a consultation paper on its proposals. 

Within all industries and sectors, certain services will be provided on a self-employed basis.  In the construction industry however, there is a much higher proportion of self-employed workers than in other sectors.  According to the European Labour Force Survey 2007, 34% of workers in the construction industry are self-employed compared to only 11% in other sectors.  Further, the estimated number of individuals working under employment terms but in fact being presented as self-employed is around 300,000.

False self-employment occurs where workers are treated as self-employed for income tax and National Insurance (NICs) purposes even though the way in which they carry out their work on a day-to-day basis is more indicative of an employment relationship. It is estimated that as a result of false self-employment and with less tax and NICs being paid, the loss to the Exchequer is in the region of £350 million a year. Whilst on the face of it there is a financial advantage for the individual to be classified self-employed rather than as an employee, this could well be to their detriment in the long-term as it affects their entitlement to state benefits such as job seekers allowance. Not only this, but many individuals are being deprived of a range of employment law rights because of their status as self-employed when in reality there may be an employment relationship. 

The Government is proposing to apply a set of specific criteria to the engagement of workers in the construction industry and the payment received would be deemed to be employment income unless the worker fulfils one of following three statutory criteria:

• provision of plant and equipment – that a person provides the plant and equipment required for the job they have been engaged to carry out excluding the tools of the trade which is normal and traditional for the job
• provision of all materials – that a person provides all materials required to complete a job or
• provision of other workers – that a person provides other workers to carry out operations under the contract and is responsible for paying them.  

The consultation exercise ends on 12 October 2009.