HR · 21 March 2016

Self-employed could be worse off due to National Living Wage

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Taxi drivers could be amongst those self-employed that continue to earn less than the National Living Wage

Over 1.7m self-employed British workers will continue to earn below the new National Living Wage when it comes into effect in April 2016.

This number is due to rise to 1.9m by 2020, according to a study from think tank the Social Market Foundation (SMF).

As part of a wider plan to boost the income of low-paid workers and transform Britain into a “higher wage, lower tax, lower welfare economy”, the government’s Living Wage strategy does not include the self-employed.

Effectively acting as a floor for employees when introduced next month, the SMF study concluded that the risk of low pay will continue to exist under the Living Wage, but that it will become largely invisible through self-employment.

Demonstrating an increasingly sharp divide between low-paid workers who are employees and the low-paid self-employed, the SMF found that roughly half of the UK’s self-employed are currently in low pay measured on an hourly basis, compared with 22 per cent of employees.

SMF chief economist Nida Broughton also warned that the National Living Wage would encourage firms to contract out services to self-employed workers and freelancers rather than hire them directly.

“Policies such as the National Living Wage make it artificially more attractive for firms to engage contractors rather than employees, and ignore a large section of low pay workers,” said Broughton.

One in seven UK workers is now self-employed, according to recent government statistics. Typically, self-employed earn far less than employees on both an hourly and monthly basis, with nearly half earning two-thirds or less than employees.

Five sectors account for the majority of UK’s low-paid self-employed: construction; administrative and support work including cleaning and gardening; transport and storage activities including taxi, coach and lorry drivers; professional, technical or scientific support workers; and retail.

The SMF found the problem of low-paid self employed to be more acute in London, where currently 18 per cent of the workforce is self-employed.

The National Living Wage is currently set at £6.70 an hour but will rise to £7.20 an hour for over-25’s from April.

In December last year, a report published by the regulatory advisory committee warned government that introducing the new National Living Wage could cost UK businesses more than £1bn.

Read on for more information about how the National Living Wage could benefit micro firms.

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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