Delivery firm faces 'self employment' challenge

Another case is soon to be heard about whether people working as drivers are self employed. This one concerns the courier firm City Sprint. This follows the recent case concerning the taxi firm Uber. in which it was found the drivers were employees.

The practice of treating drivers as self employed is not particularly recent and nothing to do with some new way of working driven by digital technology. I know this from personal experience when a few years ago a courier knocked down my garden fence. The household name firm whose jacket he was wearing and whose parcels he was delivering, claimed he was self employed (and thus I had to track him down to get my fence repaired). This was long before anyone was using the term ‘gig economy’ as if it was a radical new departure from casual, temporary or low paid work.

There is absolutely nothing new about delivery companies or for that matter taxi firms. Granted, the way we book their services has changed but this has no bearing on their workforce’s employment status.

The practice of treating large numbers of low paid workers in this way is nothing more than a symptom of supply and demand which allows these sorts of firms to ‘employ’ people on diabolical terms dressed up as self employment. This is due to the large numbers of mainly younger people who can’t get the jobs they would like in the post 2008 UK economy.

This whole question has been settled law in the employment agency sector for nearly thirty years. If an agency was supplying these workers they would be employees. As the Uber case has already found (and in all likelihood the City sprint case will too) that is because they areemployees.

However, this has very little to do with employment rights and everything to do with employers national insurance (ENI). Subject to a small initial allowance, this is just under 14% of gross wages paid, payable by the employer on top of any wages paid to the individual. These companies are almost certainly not passing these saving on the workers and instead keeping it all for themselves… and HMRC want it.

Back in 1988 when precisely the same loophole was closed for employment agencies the Inland Revenue (as was) set about enforcing the new rules and collecting ENI from anyone who had been paying wages in gross. The National insurance rates were lower then (10.45% rather than 13.8% now) so while the impact was fairly massive then, it will be even bigger now.

The tax man reasoned that the amounts paid were the starting point and assessed ENI on top of that. Many firms went bust as a consequence with back dated assessments running into millions. I have no idea what kind of margins these firms operate on, but I wouldn’t fancy a charge amounting to 13.8% of my payroll. I doubt they or their shareholders do either.

The collapse of City Link on Christmas Eve of 2014 might therefore prove to be the first of many.

Tim Loftus - Director of Prisma Recruitment