‘Labour must oppose zero-rights employment’

Self-employment is the Gordian knot of the British economy. Within it lies the potential to unleash the power of some 4.3 million workers to generate increased growth and prosperity. Yet, since 1999, governments have tightened the knot and added various new bowlines and clove hitches to it.

The current government is shaping up to be the best in a generation in terms of action. The new employment rights legislation is one side of that coin: it empowers and protects employed workers. The second side must be the protection and empowerment of the self-employed.

We now have the Fair Work Agency, with powers to enforce these rights. At the Department for Business and Trade (DBT), Kate Dearden MP serves as Minister for Employment Rights; she previously led the self-employed section at Community Union. Peter Kyle MP, on first winning election to Parliament, partly credited his success to reaching out to freelancers and small businesses in his community. Lucy Powell MP, in her bid for deputy leader, highlighted small businesses and the self-employed. In parliamentary committees, freelancers and the self-employed have allies, including Bill Esterson MP, Chair of the Energy Select Committee, who has long been a friend of the self-employed. The government is also appointing a freelance champion for the media community.

READ MORE: ‘The government’s workers’ rights agenda must include self-employed people too’

However, there are still dark clouds hanging over self-employed workers. We want to be recognised and respected—not “rescued” from self-employment. Self-employed workers do not ask for employment rights; instead, they ask for rights at work: the right to be paid on time, the right to an appropriate written contract, and the right to be free from bullying and intimidation. This should be the starting point.

This is important because, in recent years, thousands of workers have been reclassified as employees for tax purposes, but not for rights. (Believe it or not, the tests for being an employee for tax purposes and for employment rights are separate— they should be aligned.) We therefore also ask for proper employment rights from the client for whom we work when we are classified as employees.

Many freelancers have been pushed into zero-hours contracts or forced to work through payroll companies (such as umbrella companies) in order to bypass these rights. Umbrella company engagement rose to about 700,000 workers, a ~169% increase, from 2015 to 2022–23, and has risen more in recent years. Labour’s original policy was to abolish these arrangements, but it has now chosen to regulate them instead. This is partly because large organisations running payroll companies had been accused of using them for tax evasion—and it is important to note that it is the companies setting up these umbrella schemes, not the workers forced to use them, who are responsible.

The problem is that what should be an exception-based payroll model is becoming mainstream. Organisations are trying to minimise both their tax risks and the rights of their contingent workforce. We believe that taxes should trigger rights, yet through this loophole those rights are being avoided. The government has chosen to regulate this, in part due to our lobbying. While this has addressed some tax issues, the rights issues remain.

Under the umbrella company model, workers are required to use these companies but can at least obtain a semblance of some employment rights—though not from the actual end client for whom they work. This can be described as a legalised form of disguised self-employment; some might call it legalised bogus self-employment.

It is possible to receive minimal statutory rights, such as holiday pay (effectively deducted from wages), limited maternity and paternity pay (also funded from workers’ own earnings), and pension contributions—though there is no employer contribution from the end client, agency, or umbrella company. Workers are charged fees to process their wages, to contribute to pensions, and even to cover the apprenticeship levy owed by the umbrella company. This is all legal—and it gets worse.

There are some protections for those working through employment agencies as temporary workers. However, the industry trend appears to be pushing these workers into the umbrella model as well, ensuring tax compliance while minimising rights. Temporary workers are often urged to opt out of their traditional protections through a clause known as the “Conduct Regulations.”

In the industry, this is called “off-payroll working but inside IR35.” We call it exploitation.

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There is an even more troubling model—prevalent in the public sector, particularly in the NHS—where end clients hire workers directly off-payroll. These workers are classified as employees for tax purposes but receive no employment rights, not even the minimal umbrella company rights as they do not go through payroll firms. As a result, they receive no sick pay, pensions, holiday pay, maternity pay or paternity pay.

They are deemed employees for tax purposes, but in terms of employment rights, they effectively do not exist. Under the umbrella model, there is at least a nominal employer; under this model, there is none.

I have heard of cases where workers have tried to raise grievances and have been told they are not employees—or, in effect, that they do not exist. When they ask who their employer is, they are told they are neither self-employed nor employed. How can it be legitimate for the organisation paying their wages to evade this responsibility?

During COVID, many of these workers were excluded from support because they were neither employees nor traditionally self-employed. They were left on their own—excluded and forgotten. It is clear why.

This arrangement is a loophole in employment rights that must be closed in the upcoming Employment Status Bill.

Many self-employed workers, who have few protections, are particularly vulnerable. Those who value their independence are increasingly exploited. As more work becomes precarious and freelance, there is a clear need for unions to represent this growing group and prevent exploitation. Many unions are responding—the world of work has not stood still, and the fight for rights at work continues.

We should be fundamentally opposed to taxing individuals as employees without providing corresponding employment protections, rights or benefits. We should oppose “zero-rights employment.”

Employment taxes should trigger employment rights. While umbrella companies may sometimes be useful as payment vehicles, those rights should be vested in the end client. This system of disguised or bogus employment cannot be allowed to continue.

Organisations should either treat these workers as genuinely self-employed or as employees with full rights—there should be no middle ground.

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This presents a challenge for unions and for the government: to confront what is happening and to listen to workers. Fortunately, we have a Labour government, and supporting workers—both employed and self-employed—is in our DNA.

As a trade union movement, and as a Labour movement, it must be our intention to stand up for them.

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