One in Five Freelancers Could Quit Self-employment

By: Rachel Miller

After two decades of growth in UK self-employment, a new study by the London School of Economics has found that one in five freelancers consider it likely that they’ll leave self-employment as a result of the coronavirus crisis.

The research, undertaken by the Centre for Economic Performance at the London School of Economics (LSE), found that the easing of pandemic restrictions over the summer only had a marginal effect on the self-employed, with 58% saying they had less work than usual in August 2020.

The LSE report – COVID-19 and the Self-Employed: Six Months into the Crisis – has found that even after England’s first lockdown lifted, 32% of self-employed workers had fewer than 10 hours of work a week in August.

Self-employed workers who operate through digital apps in the gig economy have had more work, according to the LSE report. However, 78% of these workers – including parcel delivery workers and private hire drivers – said they felt their health was at risk while working.

Other key findings include:

  • 28% of respondents had applied for a second grant under the Self-Employment Income Support Scheme (SEISS);
  • Of those who had not applied for either the first or second rounds of the SEISS grant, 38% were not sure of their eligibility;
  • A third of respondents think normal activity will not resume until after February 2021;
  • One in ten think it will never resume.

Of most concern is that 20% of freelancers polled said they “consider it likely” that they’ll leave self-employment as a result of the crisis – this rises to 59% among those aged under 25. The newly self-employed are more than twice as likely to report having trouble with basic expenses when compared to other self-employed workers (52% versus 24%).

Stephen Machin, co-author and CEP director, said:

“While the growth in self-employment has been one of the key trends in the labour market in the past two decades, there are now early signals that this trend could be set to reverse.

“By the summer, there had already been a sharp fall in the number of self-employed workers – this may be primarily due to the lockdown, but for some it will be due to realising the risks of self-employment. The COVID-19 crisis has vividly illustrated the social insurance available to different types of workers, with many experiencing the basic safety net of Universal Credit for the first time.”

According to the Association of Independent Professionals and the Self-Employed (IPSE), “glaring gaps in support” are leading to “long-term, avoidable decline” in the self-employment sector.

The latest data from the Office for National Statistics (ONS) shows that the number of self-employed workers in the UK has already fallen to 4.53 million, down from 5.1 million at the end of 2019.

Derek Cribb, IPSE ceo, said:

“After the 2008 financial crisis, it was rising self-employed numbers that kept unemployment comparatively low – as uncertain employers looked for more flexible expertise instead of permanent employees. Now, this does not appear to be happening and the self-employed sector is in precipitous decline. Some self-employed are finding their way into full-time roles, but many others are joining the record flow into unemployment.

“Government must work quickly to stem this flow by urgently getting support to the left-behind self-employed groups. Extending support would be a cost now, yes, but it would be a temporary cost during the pandemic, to hold back an even worse unemployment problem later.”

Written by Rachel Miller.

Record Number of Self-Employed Seek In-house Roles During Pandemic
September 1, 2020

A record 253,000 people moved from self-employment to employment in the second quarter of 2020 suggesting that workers are seeking more job security due to the coronavirus pandemic.

The move towards employment increased by 81,000 compared to the second quarter of 2019 which saw 172,000 people make the switch.

Compared to figures for the first quarter of 2020, the number of formerly self-employed employees rose by 48,000 from 205,000.

Between the first and second quarters of 2020, at the height of the pandemic, only 6% of people changed occupation, yet over half (53%) of those that did also switched their major industry, suggesting that they were seeking a career change as opposed to promotion.

Occupation switchers that have changed major industry between Quarter 1 and Quarter 2 2020. Source: ONS

The ONS suggested that the disproportionate effect the pandemic has had on some industries, like travel and hospitality, could have encouraged some peoples’ decisions to change their major industry.

The latest data from LinkedIn appears to support this trend according to its UK country manager Josh Graff.

Today’s [ONS] figures underscore the fact that we’re facing the toughest labour market in a generation. LinkedIn’s latest data shows that although hiring in the UK has been steadily improving since the steep decline we saw when lockdown measures were put in place, it’s still down on this time last year,” he said.

“Competition for roles has increased three fold and […] workers in the hardest hit industries are looking to other sectors as they seek out new opportunities.”

ONS data showed switching occupations between the first halves of 2019 and 2020 showed a slight increase of 0.4%. It said that this could be due to the effect of the government’s job retention schemes, which could be masking the true scale of UK unemployment, and predicted that the rate of occupational switching may rise as support unwinds in the months leading to 31 October.

Speaking to HR magazine Steve Warnham, jobs expert at Totaljobs, said the job site’s research supports this theory.

He said: “Yesterday’s ONS report revealed a slight increase in the number of people changing occupation in the second quarter of this year. Though this is a trend which is likely to become more prevalent as employment support, such as the UK’s Job Retention Scheme, comes to an end.”

In a survey from April, Totaljobs found 70% of UK workers said they have considered working in a different sector due to COVID-19, and a quarter said they expect to switch industries within the next year.

A desire for increased job security was the reason 32% of survey respondents said they were considering a career change in a different industry.

For Simon Kerr-Davis, counsel at Linklaters employment and incentives practice, he ONS figures are unsurprising. “In times of uncertainty, the perceived job security of employment status has much more appeal than the flexibility offered by self-employment,” he told HR magazine.

Yet he warned employees to be mindful of the perceived security offered by working for an organisation, as the statutory notice period for under two years’ service is just one week.

He added: “The right to a redundancy payment and protection from unfair dismissal also have service requirements and will only apply after two years’ service. There are some “day one” rights for employees which are significant, such as protection from discrimination and from suffering a detriment as a whistleblower, but these rights are also available to self-employed people who provide their services as “workers.”

More on employee redundancy rights:

Legal lowdown: Getting redundancies right

Coronavirus and its potential impact on employee rights

Businesses and ministers need more than redundancy pay law to protect employees

The ONS Coronavirus and occupational switching: January to June 2020 is based on data from the ongoing annual Labour Force Survey.

Over Half of Self-Employed UK Workers Don’t Know What IR35 Is
December 12, 2019

More than half (57%) of self-employed workers in the UK don’t know what IR35 is, new research from FreeAgent reveals.

Its study, which surveyed 2,000 self-employed people, showed that the majority of people most affected by IR35 are unaware of the legislation, which is designed to combat tax avoidance by both workers and the firms hiring them.

The research also found that 30% would like to see IR35 dropped for the private sector and that just 12.9% want to keep the legislation. 

Additionally, 44.5% said they would like to see the UK tax code simplified for small businesses, and 56% want the new government to cut small businesses’ taxes. 

Ed Molyneux, CEO and co-founder of FreeAgent, said the lack of awareness of IR35 among self-employed people was a concern. 

“There is a vacuum of conveyance of important information between the government and small businesses,” he said. 

“The need for a more informed UK small business nation extends beyond IR35 and applies to other regulations which, at the end of the day, can make or break small businesses.” 

The research comes as the UK’s major political parties have all promised to review IR35 tax reforms due to be rolled out to the private sector, as part of their pledges in the lead-up to the general election on Thursday (12 December).

Earlier this week, the Conservative party pledged to review IR35 if it wins the election. Speaking on Radio 4’s Money Box show, chancellor Sajid Javid said the Tories would review the rules to “make sure that the proposed changes are right to take forward”.

This announcement came despite no formal pledge appearing in the party’s manifesto. 

Labour, the Liberal Democrats, and the Scottish National Party (SNP) have made similar promises, with written pledges in the Lib Dem and SNP manifestos. 

Changes to IR35 will come into effect for private sector firms in April 2020, with the responsibility for assessing contractors’ tax status shifting from the contractor to the company that hires them. 

The move is an attempt to tackle situations where self-employed contractors are effectively employees but are not treated as such, lowering taxes for both sides. 

This follows reforms to IR35 legislation for the public sector which came into place in April 2017. 

The planned changes for the private sector have faced a backlash from freelancers and business groups, who claim companies have not had long enough to prepare and the policy will lead to increased disputes. 

Ryan Barnett, economic policy adviser at IPSE, told HR magazine that IR35 would be a “disaster” for both private sector businesses and contractors. 

“The changes to IR35 will be a disaster for freelancers and the many businesses that rely on them,” he said. 

“[FreeAgent’s] research also confirms the government has done nowhere near enough to prepare businesses and freelancers for these changes. It is shocking that so many freelancers do not know about them. 

“The same is true for businesses. And, as more of them are finding out about the changes, they are panicking. We are now seeing banks and other major businesses panic-scrapping their entire contractor workforce. Even before the changes take effect, they are causing chaos.”

Barnett called for an overhaul of the system. “IR35 is a symptom of an outdated tax system that was not built with freelancers in mind – only employees and employers. The result, as freelancers clearly recognise, is a complex mess,” he said.

“It’s time to stop tinkering around the edges and fully redraft our tax code so that it works for employees and the self-employed alike.” 

Steven Cameron, pensions director at Aegon, said the legislation also has a negative effect on pensions. 

Speaking to HR magazine, he said: “In general, the self-employed are not benefitting from being auto-enrolled into a workplace pension with an employer contribution, so could become second-class pension citizens. 

“Any IR35-style reclassification of contractors should also consider granting them the same pension rights as employees.” 

Molyneux said that any government review should keep small businesses and self-employed people at the heart of decision-making. 

He added: “This is a delicate state and nonchalant decisions made without clear communication to those most affected is simply not acceptable.”

Disabled Choosing Self-Employment for Better Working Conditions
June 25, 2019

More disabled people are choosing self-employment but are being let down by poor support fromthe government, according to new research from IPSE.

The Association of Independent Professionals and the Self-Employed (IPSE ) study, Making self-employment work for disabled people, found that 611,000 people with disabilities in the UK now work for themselves in their main job.

The report found that one in seven (14%) of the self-employed UK workforce are disabled, up by 30% in five years. The research emphasised that disabled people actively choose self-employment, with only 12% feeling they were ‘pushed’ into it by a lack of opportunities or redundancy. Read more