A debate over the rise in self-employment in the UK and the methods used by companies to limit their wage bills has erupted ahead of the introduction of the national living wage.
A study by the Social Market Foundation (SMF) claims 1.7 million self-employed workers earn the equivalent of less than the £7.20 per hour rate for over-25s that comes into force next week and will not benefit from the changes. It adds that the number will rise to 1.9 million as the rate increases to £9 per hour by 2020, the BBC reports.
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There are around 4.6 million self-employed workers across the UK, of which the think-tank says 49 per cent effectively earn less than the average hourly rate of workers. New wage rules may encourage companies to employ more of their workforce as independent contractors rather than employees, making the problem even worse, it adds.
"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-paid workers," said SMF chief economist Nida Broughton.
Employers also benefit from using self-employed workers as they are not obliged to pay for holidays or sick leave.
The number of people nominally working for themselves has been surging in recent years, which critics say shows how weak the jobs recovery really is while the Conservative government argues it is a sign of increased entrepreneurialism, boosted by new tax incentives.
"This government is committed to backing enterprising self-employed people through initiatives like start-up loans, tax allowances and by cutting red tape by a further £10bn," said a spokesperson for the Department for Business, Innovation and Skills. "Our new national living wage will give a boost to over one million low-paid workers when it takes effect next week."
Any attempt by companies to shift huge numbers of employees over to contractor status could run into legal problems.
According to the employment status rules, a person is unlikely to fit the definition for self-employment if, among other things, they do not take the financial risk – and enjoy the rewards – of their activities, their working hours and activities are controlled or supervised by the firm they work for, or they are prevented from working for competitors.
Living wage: will higher salary kill 900,000 retail jobs?
29 February
Britain's retail sector will lose as many 900,000 jobs over the coming decade as two flagship policy changes announced in last year's summer Budget exacerbate pressures, it has been claimed.
A report from the British Retail Consortium, published this morning, says the national living wage, to be phased in over four years from this April, will add £3bn to annual wage bills alone, while the costs of a new levy to fund apprenticeships will be around £400m a year, according to The Times.
Sir Charlie Mayfield, the head of the consortium and the chairman of the John Lewis Partnership, said the report was not intended as criticism of the policies, which both have "sound intentions", but they would add to downward pressure on workforce numbers and cause more jobs to be lost than expected, especially in "economically fragile" areas such as Wales and the north of England.
"I do very much believe that persistent low pay needs to be tackled, which is why we're talking about 'fewer but better' jobs," Sir Charlie told the BBC.
There were 191,000 fewer jobs in retail in 2014 than at the pre-crisis peak in 2008, with a sector shake-up caused by the rise of the discounters, increasing automation and a move online by shoppers adding to this trend, says the report, adding that job losses would likely be accelerated by a heavy tax burden.
In terms of areas the government should look at, the consortium says politicians should redress the tax imbalance between retailers with a heavy store presence compared to those operating exclusively online, as well as reviewing the impact of the apprenticeship levy and living wage at a local level.
The Financial Times reports that ahead of the report's publication, Tesco was revealed to be reviewing options to manage costs as it seeks to arrest a slide in market share, including potentially cutting 39,000, or one in six, jobs.
There are reasons to suggest the consortium's report might be excessively gloomy, though. Firstly the Financial Times notes that while five of the largest retail brands have been cutting the number of staff per store in recent years, the number of stores and jobs overall has risen over the past decade. It adds that higher wages will also boost spending, which will buoy the retail sector even as it copes with higher costs.
The bullish tone of newcomers such as Aldi, which has offered staff a pay deal well above the 2016 national living wage level, also suggests the troubles faced with the legacy brands will not be replicated uniformly across the sector.
Living wage: Tesco's pay deal falls short of rivals
03 February
Tesco has revealed the details of a new pay deal to meet the incoming national living wage but it falls well short of the offers from several of its sector rivals.
All "established" hourly paid staff will see their salaries rise by an average of more than three per cent to £7.62 an hour from July, The Guardian says, 42p above the £7.20 minimum the grocer must pay workers over the age of 25 from April. In contrast, "new" workers of any age will see their pay rise from £7.04 to £7.20 in time for the new rules, before nudging up to £7.24 in July.
To fund the changes Tesco is cutting the rate of pay on Sundays and bank holidays from double-time to time-and-a-half, while night-shift supplements will apply after midnight instead of the current 10pm. The company says 85 per cent of workers will be better off, while the small number that lose out will receive a payment worth 18 months of the difference in pay.
The Daily Mail says long-standing staff who work anti-social hours for the higher rate and do lose out under the changes will, longer term, be paid as much as 25 per cent less. However, Tesco says the "vast majority" of staff are already on contracts that limit anti-social pay to time-and-a-half and that its overall wage bill is increasing as a result of the changes.
The offer is well short of that for workers at some of Tesco's main rivals, who last year competed to improve their pay for shop-floor staff in the wake of the new rules being announced. Aldi is leading the way with an hourly rate of £8.40, while Lidl and Morrisons pay £8.20, though again, the latter is funding this in part by cutting paid breaks and Sunday pay. Sainsbury's has upped its basic pay rate to £7.36.
Under the terms of the national living wage, hourly pay for over-25s must be at least £7.20 from April. It will then rise incrementally to 60 per cent of median wages by 2020, when it is expected to be in excess of £9. Pay for under-25s will remain at the rate of the national minimum wage, which, for those aged 21 and up, is currently £6.70.
Minimum wage: Boots cuts jobs to fund pay rises above living wage
02 February
Another high street retailer is boosting its basic pay rates to offer hourly paid staff more than the minimum required by the incoming national living wage.
Boots are to pay its workers around the country £7.70 an hour, City AM notes, while in London, the basic pay level will rise from £8.77 to £9.07.
On the other hand, some have criticised the government for not going far enough to boost low pay rates.
More positively, in some industries, it has prompted something of a wage war. In the supermarket sector, Aldi, Lidl and Morrisons have all pledged to pay rates of £8.20-£8.40 an hour, well above the minimum of £7.20 that applies from April. They will also apply them to all workers, not just those over 25.
The changes at Boots are not a direct response to the new law but are actually part of a wider restructuring that began last year – and that will include job losses. Higher wages will be paid for in part by the loss of up to 350 assistant manager jobs in larger stores, the company has confirmed, adding to the 700 jobs it announced last June would be going.
As part of the transformation, another 400 staff in Nottingham are being transferred away from the business to its call centre partner Teleperformance, which, Sky News says, will run two of the retailer's customer service centres in the city.
Boots employs 60,000 people and has 2,500 UK stores. It is owned by US pharmaceutical retail giant Walgreens Boots Alliance, which, in 2014, completed a takeover from Kohlberg Kravis Roberts, the private equity firm that controversially took the chain private in 2007, in what was the largest leveraged buyout in European history.
National living wage is 'important but not enough', says TUC
22 January
The national living wage is "not enough" to ensure fair pay more broadly at a time when average incomes remain well below their pre-crisis peak, say the Trade Union Congress.
In research published today, the TUC says that wages in real terms – that is, taking inflation into account – are on average £2,270 less than in 2008, a shortfall of £44 a week. It adds that the more sizeable increase in pay in the past year, of £435, was the first increase in "several years" and that more needs to be done to help workers.
The national living wage - effectively a higher minimum wage for those aged over 25 – comes into effect from April, when it will be set at £7.20 an hour. It will then increase each year to reach 60 per cent of median UK earnings by 2020, when it is expected to be more than £9.
It should not be confused with the independent living wage, which is voluntary for employers. This is set by the Living Wage Foundation outside of London and by the Greater London Authority in the capital, with the rates currently £8.25 and £9.40 per hour respectively.
In a blog for ITV News, political editor Robert Peston estimates the national rate will converge with the over-25s' legal minimum by 2020.
Releasing its research, the TUC said: "While forthcoming increases to the minimum wage have an important role to play in improving wages for some workers, this is not enough. Concerted action from the government is needed to support stronger wage increases for all low and middle-income workers, not just those at the very bottom."
It has also criticised incoming rules that will raise the bar for trade unions to call industrial action and demanded additional measures such as government support to create "modern wage councils to ensure that pay increases follow productivity gains".
The government might point out that the national living wage is designed to spark broader pay growth – and there is evidence from the supermarkets sector, in particular, that wage increases are being applied to all workers and at a higher rate than the legal minimum. Many firms are also pledging to adjust pay rates for all employees, not just for those directly affected by the new rules.
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