Self-employed missing out on national minimum wage

More than 1.7 million workers will be paid below the new national living wage because the rate does not cover the self-employed, according to a report.

Research by the Social Market Foundation (SMF) suggested that almost 1.9 million people will not receive the wage when it increases in 2020.

The wage of £7.20 an hour will come into force on April 1 for the over-25s, rising to £9 by 2020.

But the study, funded by the charity Trust for London, raised fears that companies might move away from directly employing workers towards contracting out services to the self-employed.

Self-employment accounts for more than one in seven of the UK workforce, rising to almost a fifth in London.

SMF chief economist Nida Broughton, said: "The Government has focused its efforts on tackling low pay among employees, but in doing so it is further sharpening the divide between employee and self-employed.

"Policies such as the national living wage make it artificially more attractive for firms to engage contractors rather than employees, and ignore a large section of low-paid workers.

"Policymakers need to adapt to a world that is moving away from the traditional employer-employee model of working."

Mubin Haq, director of policy at Trust for London, said: "There's a common assumption that people enter self-employment because they can afford to, as it is offset by other earnings including those from family members.

"This research finds that those in low-paid self-employment are 50% more likely to be living in a low-income household than low-paid employees and that their income from other sources such as savings is lower.

"In London, the self-employed have accounted for much of the jobs growth in recent years but it appears this has come at the cost of increased low pay.

"Stronger measures are needed to tackle this including specific sector support and examining the role of contractors in increasing the wage floor."

Alison Garnham, chief executive of Child Poverty Action Group, said: "In his Budget last week the Chancellor described the self-employed as a 'strong army', but it can be a tough life and rock-bottom earnings leave many of these workers exposed and in hardship.

"Worryingly, things could worsen when universal credit replaces tax credits because the new scheme calculates a self-employed claimant's entitlement on the assumption that they earn the equivalent of the national living wage on full-time hours.

"But as today's report shows, the reality is most earn less than that and are more likely to live in hard-up households than low-paid employees."

The report said 1.73 million workers will continue to be paid below the national living wage when it comes into force in April 2016 because it does not cover the self-employed.

By 2020, the number of self-employed workers paid below the new rate is expected to rise to 1.88 million.