Mon, 19 May 2014 | By Nicola Sullivan Fears have been raised that Labour’s proposal to increase the National Minimum Wage (NMW) by linking it to average earnings would increase the use of ‘shady’ non-self employment models.

In April legislation introduced as part of the Finance Bill means that a staffing company or managed service provider will be liable for the tax and National Insurance Contributions (NICs) of workers supplied by them through an intermediary on a sole trade/self-employed basis, unless they can prove to HM Revenue & Customs (HMRC) that those workers are genuinely self-employed. 

However, according to John Chaplin, director of the total reward practice at Ernst & Young, while a worker might be treated as an employee for tax purposes and deduct PAYE and NICs, he or she would not necessarily be granted with full employment rights, including the NMW. 

And these kinds of arrangements, says Chaplin, will become more attractive if the NMW rises significantly, as a result of Labour’s proposal to link it to average hourly earnings and increase it in accordance with a five-year target came into fruition.

He tells Recruiter “If the employee is properly self-employed then they are not captured by the national minimum wage. I do worry if the NMW goes up considerably, then it could be a driver for [organisations] to look to non-employment worker models that purport to be on a self-employed basis.”

Chaplin adds that any increased use of these arrangements would depend on the size of the increase and how quickly it was phased in, as well as the economic environment. 

Ed Miliband is due to unveil his party’s proposals for the NMW today at the launch of Alan Buckle’s independent report on low pay, which shows that the number of workers on low pay now stands at 5.2m – one in five of all workers and one in three of women at work – up from 4.8m in 2012 and 3.4m in 2009.

As part of its policy review, Labour will consider a number of the report’s recommendations.

These include:

• Strengthening enforcement of the NMW by extending the remit of HMRC to take action against employers that fail to pay workers for holidays and work closer with local authorities on inspection.

• Encouraging employers to pay the ‘living wage’ by making it a condition of major central government contracts, requiring employers disclose numbers earning less than the rate, and offering temporary incentives to raise low pay.

• Raising productivity and wages in different sectors of the economy by empowering the Low Pay Commission to create taskforces with employers and employees to boost productivity and wages in low paid sectors, and see how those sectors which can afford to pay more do so.