PSA: The Pros and Cons of Self-Employment

PSA: THE BIGGER PICTURE

THE PROS AND CONS OF SELF-EMPLOYMENT

PSA’s Andy Lenthall weighs up the advantages and disadvantages of self-employment or freelance work in line with government legislation.

“Just don’t do it,” was one response to a recent question on social media about taking the leap from the salaried day job to self-employed tech. That and advice about putting cash aside for tax bills and quiet periods, if you get ill or maybe start a family; all this – plus the sound advice that sauce sachets from takeaways make instant noodles almost palatable – left the original poster with some serious thinking to do.

That post and a recent workshop around skills, talent and diversity getting a bit stuck on how to deliver vocational skills to a largely selfemployed workforce that can’t really afford to carry trainees got us thinking about the advantages and disadvantages to both workers and employers – something that has seen a gentle shift towards PAYE employment in some areas, along with an enforced legislation-driven shift in others.

ADVANTAGE WORKER

For those who were of working age and touring the world before 1998, the distant memory of tax-free overseas income, as long as you spent less than 62 days on UK soil, was a major advantage to everyone involved in global touring. One tour, big bag of cash, pop down the exchange bureau, pay off mortgage. Anyone done that recently?

Sure, there were disadvantages such as access to education for the kids, access to healthcare and the benefits system, but it was a young industry with young people with not a great deal of responsibility and a certain air of invincibility. Some 20 years later, income is taxable and day rates haven’t risen by as much as inflation for many, leaving some people with a lifestyle rather than a living.

ADVANTAGE EMPLOYER

Nobody can deny that the seasonal, feast-and-famine nature of live production means a flexible workforce is needed. The ability to grow and shrink with the ebb and flow is by far the biggest advantage to our sector. TPi’s very own business leaders’ survey cited the largely self-employed as advantageous to their companies. The flexibility is one thing, but the exclusion of the added benefits of PAYE employment such as holiday pay, extra pension contributions, sick pay and shared maternity leave can soon outweigh the difference in salary and day rate.

Small wonder, then, that only 10% of respondents to the TPi survey reported that they don’t use freelancers, and the PSA’s own research showed 40% spending over £100k per year on self-employed labour. Only 23% of industry leaders saw a move towards employed technicians as a growing trend.

Of course, there is always the often-ignored Working Time Directive. Apparently completely disapplied for self-employed people, it’s perhaps more easily managed in an employed environment. In fact, a ruling by the European Court of Justice back in May obliges employers to record all working hours and breaks for all employees – a protection not afforded to self-employed individuals.

With the concept of free at the point of delivery healthcare also under threat and health insurance likely to be an employee benefit that becomes the norm, day rates will surely have to rise.

THE DIVERSITY QUESTION

Something that isn’t often considered is whether self-employment encourages a diverse workforce. Does our sector attract a certain type of person? Our research suggested single straight male, state school educated with the majority living in London and the South East. As work can generally be geographically disparate, using self-employed techs for anywhere means that a company’s workforce may not reflect the diversity of its locale. Those companies that make efforts to reach into their local community, to open up opportunities to those who might mistakenly think that this industry isn’t for them, may well find hidden gems and potential assets.

DISADVANTAGE EMPLOYER

Perhaps that’s enough for employers; the flexible workforce and costeffectiveness outweighs the complete lack of commitment to any one client. Sure, there’s loyalty out there, but self-employed status starts but by no means ends with no mutuality of obligation; there’s no guarantee to either offer or accept work, just like the much-maligned zero-hours contacts – we are, after all, the original gig economy.

Changes in legislation back in 2014, designed to combat ‘false self-employment’ gave intermediaries such as crew companies the responsibility for collecting PAYE contributions.

This applies only to companies who contract to supply personnel only to a client; adding technicians to the supply of kit is not seen as an intermediary-type relationship. Even so, the presence of a zero-hours contract doesn’t guarantee loyalty. There are, however, companies out there that employ technicians on a minimum-hours contract, giving guarantees of earning for the worker and availability for the employer.

ADVANTAGE WORKER

Although not quite the same as the days of tax-free overseas earnings, self-employment is seen by some as a tax-efficient way of working – latterly higher earners forming single director Ltd companies as a way of taking earnings as dividends until that advantage was neutralised by the man with the red briefcase.

Freedom to pick and choose when and where you work is attractive, but only when there’s the work to choose from. Our workforce survey last year suggested that workers are typically busy for 200-250 days per year.

HANG ON, ARE YOU ACTUALLY SELF-EMPLOYED?

Who makes the decision that you’re self-employed, anyway? You? You have made the decision that you want to offset some expenses against tax. Your client? They have decided that they want to pay you their day rate and leave you to sort the rest of your personal fiscal arrangements? Of course, it’s neither; HMRC decide what is and what isn’t self-employment, according to a range of indicators.

It’s been a long time since simply working for more than one company secures self-employed status; there’s also talk of entrepreneurial risk, not charging by the hour but invoicing for a job, one price agreed and charged, if the job takes longer, the price is fixed.

Look at the HMRC website and use their employment status calculator and only one indicator is considered: substitution. The calculator asks if the individual contractor can provide a substitute, if they are required to find the appropriate substitute and if they are required to pay the substitute. Three ‘yes’ answers gives clarity: they are self-employed. Any other combination gives a hugely helpful ‘maybe’ or a clear ‘not self-employed’.

Not everybody has a clear picture in their head of providing technical services rather than being a technician. Sure, the intention is of turning up and doing the job in exchange for money, but the nature of the relationship must be a contract to provide services, to take that inert pile of boxed technology and apply your skills and knowledge to turn it into a functioning system because the people who own it can’t.

Are we fine just carrying on because that’s the way it’s been done in the past? Are the advantages fairly balanced between client and individual? Are we actually sailing a bit close to the wind in the eyes of HMRC? Perhaps that’s just down to you and your accountant but it’s always good to keep up with those subtle changes in approach.

DISADVANTAGE WORKER

Tax efficiencies don’t count for much for the 24% of respondents to our survey that earns less than £20k. The savings count for nothing when you take away the protection of sick pay, maternity/paternity leave, paid holiday and other employee protections; let’s not forget the regular monthly pay, too, rather than the possibility of having to chase payments that are relied on to pay household bills.

Advantages may exist somewhere in the turnover sweet spot of £20k to £60k where 55% of workers reside, perhaps at the higher end of the range. Consider recent changes to employment legislation – workplace pensions and shared parental leave are but two; every workplace improvement is an advantage to employees that doesn’t find its way to the self-employed workforce, the current #selfieleave campaign highlighting the need for self-employed people to have the same paid parental leave as those who are employed.

The legislative stick is backed by the employee benefit carrot, but that in turn increases the perceived cost of PAYE employment to companies. Can a self-employed technician really be in a position to pay themselves if they’re ill, take time off to enjoy the joys of new parenthood, take 20 days.