THE REAL COST OF BOGUS SELF EMPLOYMENT
Posted on December 04, 2015 at 03:26 PM
Fergus Whelan asks who gains and who loses from this growing practice
You could do a lot with €640 million.
At a very minimum, you’d imagine a sum of this magnitude would ensure our housing crisis was a thing of the past.
Or that the shocking sight of senior citizens being forced to endure days and nights on trolleys in Accident & Emergency departments across the country, might be consigned to history.
But it seems we don’t need the money.
That at least is one of the conclusions that could be drawn from the newly-published Congress Briefing False Economy: The Growth of Bogus Self-Employment in the Construction Industry.
While many are aware that ‘bogus self-employment’ has been a growing problem in the industry over recent years, there have been few attempts to both measure its extent and, critically, estimate the likely loss to the State and the taxpayer.
Bogus self-employment is nothing more than the deliberate misclassification of construction workers as self-employed, rather than as direct labour, in order to ensure major contractors save money on social insurance payments.
It can also open the door to possible fraud, allowing a contractor to quote a price based on employing direct labour – which includes social insurance, pension contributions and holiday pay - while the workforce in question is comprised mainly of bogus self-employed workers (who rarely have any choice in the matter).
In that case, there is a substantial differential between the two prices, which provides a very large incentive for fraud.
Given the significant investment programme currently underway in relation to school building, for example, this should be a clear cause for concern at the highest levels of government and officialdom.
Whenever we have raised the matter with the relevant authorities, we have been repeatedly reassured that all is well.
But on the basis of what has been uncovered by the Congress report, a very simple question arises: how can they tell?
In 2007 unions, employers and Revenue agreed a Code of Practice designed to tackle this problem.
Since then self-employment in construction has virtually doubled. Based on information supplied via responses to parliamentary question, there is anything between 30,000-40,000 subcontractors operating in the sector.
Officials estimate that some 81% of that number are sole traders. Even taking a figure at the lower end of the scale, that could equate to some 27,600 individual workers who all happen to be self-employed.
It doesn’t add up.
But what do add up are the losses that the taxpayer and the state are shouldering every year.
Every single bogus-self-employed worker costs us €2886 in lost PRSI per annum. If the 27,600 self-employed are all bogus – which is very possible – then that equates to a loss of €80 million a year.
That adds up to almost €640 million lost since 2007, when the Code of Practice was first drawn up to stop this happening.
But that Code has not been honoured.
Meanwhile checks and risk control measures operated by Revenue were lost in 2012, when they moved the registration system online.
Under the current system, you must opt out of ‘self-employment’, even if that may mean the loss of work.
Under the old system, workers had to opt-in to self-employment and were warned of the consequences of doing so: loss of holiday pay, pension rights, social insurance cover, of labour law protections.
That is no longer the case.
Under the current system, the power to designate workers as ‘self-employed’ rests with the main contractor – despite that fact that he/she can gain significantly from doing so.
That doesn’t add up either.
Rogue employers benefit and good employers are put under pressure. Workers are reduced to the status of day labourers and the industry sees an erosion of standards.
Ultimately, responsibility rests with our politicians and policymakers who appear disinclined to ensure that labour standards in construction are upheld, good jobs supported and public contracts are not a vehicle for fraud.
And that’s not to mention the small matter of the €640 million.