Compelling report calls for the enforcement of direct employment

With the introduction of changes to IR35 due to come into force on 06 April 2021, the Joint Industry Board (JIB) is urging clients and large contractors to enforce direct employment in their workforce and build back better by investing in the skills which are needed to meet the demands of the industry and deliver a safer, more productive environment for the future.

This comes on the day the JIB released a compelling and authoritative report; Direct Employment – A study of Economic, Business and Social Outcomes based on the Electrical Contracting Sector which highlights the negative impact which the steady growth in non-direct, off-payroll working is having on the UK electrical contracting and construction industries.

Authored by Howard Gospel, Emeritus Professor of Management at King’s College London, it is one of the most comprehensive studies which has ever been undertaken and draws on interviews with over 50 experts, industry materials, government reports, and peer-reviewed academic research. The report analyses the growth in non-direct, off-payroll working, the impact this has had on productivity, skills and safety, and the benefits which a directly employed workforce bring to the industry.

In the report Foreword, Andy Mitchell, Co-Chair of the Construction Leadership Council, and Gail Cartmail, Unite Asst General Secretary & President of the Trade Union Congress herald the report as a very timely one and, in commending the recommendations to the industry, jointly urge it to make sure that the report doesn’t sit on a virtual shelf but becomes a ‘catalyst to action in the work we are all embarked upon to create a more innovative, productive, sustainable, and attractive industry’.

The report acknowledges that subcontracting and self-employment remain essential features of electrical contracting and other parts of the construction industry but suggests that the balance has been allowed to tip too far away from direct employment. It indicates that if the industry’s and the Government’s priorities for this and future decades are to be achieved – for example, in safety, quality, skills, efficiency and innovation – then a healthier, more sustainable balance needs to be restored.

Professor Howard Gospel says: “The UK’s retreat from direct employment cannot be explained away as some sort of ‘natural’ phenomenon or the ‘inevitable’ consequence of increased market competition. It is the result of specific actions and decisions taken over many years by industry clients, contractors, and successive Governments – not least in the key policy areas of procurement, tax, social security, and employment law.”

The report acknowledges that non-direct working offers firms some short-term conveniences, including the freedom to take on and remove workers at will. It also recognises that there are cost savings by not having to provide benefits such as paid holidays, sick pay, and pensions. Whilst there may be advantages for individuals through higher take-home pay, these workers do not enjoy the benefits or the security which is offered by direct employment.

Nevertheless, the report points towards the stark fact that, on balance, the negative effects of non-direct working predominate. This is a particular problem in the area of skills formation, where non-direct employment threatens the future of apprentice training, career progression and the industry’s capacity to take up new technologies and techniques. In addition, research evidence indicates the negative effects on health, safety and well-being, and the undermining of industry standards and regulations. From a broader societal point of view, non-direct working also reduces the tax receipts which fund public services.

Jay Parmar, Chief Executive of the JIB says: “Despite far higher levels of non-direct working in the UK than almost anywhere else in the world, and the well-documented negative effects on (among other things) construction productivity, skills and safety, the leadership and collective will to do something about this issue has long been lacking. This report therefore calls for a comprehensive and sustained campaign to reverse this trend, as a key part of current efforts to build a better, more productive, higher skilled and sustainable UK construction industry.

“Clients and large contractors must therefore act now and demonstrate leadership by awarding contracts to firms which directly employ their workforce and by enforcing direct employment and greater transparency throughout their supply chains. We must also join together to campaign for public policy changes which remove artificial incentives towards false self-employment and false direct employment through the tax system. Only by doing this can we hope to provide a better future for those working in the industry, both now and in the future.”

The recommendations made by Professor Gospel will be a key focus for the JIB over the coming months. The JIB also expects to work closely with the Construction Leadership Council, whose Industry Recovery Plan, published in 2020, acknowledges direct employment as an essential ‘enabler of apprenticeships, upskilling and competence’.

The full report is available to download from the JIB website.

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