Last month saw Pension Awareness Day make the news, a day designed to ‘promote the importance of saving for the future and to alert the nation that it is not saving enough for retirement’. This is a big issue for everyone, but it’s become an even bigger issue in the face of the growing gig-economy, as these workers have an uncertain income, and few rights as they're not generally considered to be workers in the legal sense.
What is the gig-economy?
Walk along any street leading into or out of a city centre today and you will see two circles and a large square fly past, then another. And another. The square will most likely say ‘ Deliveroo’ on it, possibly ‘UberEats’ if you wait long enough – what you are seeing whizz along or trundle up a hill is not a teenager stealing a beer-fridge, but indeed the workforce of the future.
The term gig-economy started as a novelty buzz-word but has quickly gained traction as the correct term for a much-discussed area of business, which seems to be growing at an incredible speed.
Where did it come from?
During the fairly recent global recession jobs were sparse and nobody felt this more than young people in (or having just completed) their education. Younger people approaching work for the first time face an uphill battle as they lack references and are often perceived as lazy or unfocused. They also struggle to get jobs due to a lack of experience, and struggle to get experience due to a lack of jobs. Add to this high rates of UK unemployment and the increased desire for stressed and overworked UK employees to obtain food which had been cooked for them in advance and you have a boom in gig-work; and a boon for young workers queuing in droves for casual jobs to gain the experience and money they struggle to obtain.
What are the challenges that gig-workers face around pensions?
To understand the challenges faced by gig-workers, consider this scenario:
- To gain auto-enrolment status for pension contributions from your employer, you need to earn 10k per annum.
- You earn 15k per year, so are well aver the minimum rate.
- However, you’re a gig-worker, who works five days, three for your main employer and two other days, for two other employers.
- As you only earn 9k from your main employer (your highest single income) you are not seen as meeting the 10k auto-enrolment threshold, so don’t qualify for employer contributions.
- If the gig-economy continues to grow as many predict, then this scenario will of course affect a lot of people and if people make a long-term career they will never accrue a meaningful pension.
There are still options for gig-workers below the 10k threshold, however. If gig-workers are paid up to £6032p.a. then they have the right to ask to join the company’s pension scheme but the employer is not obliged to contribute to this at all. As soon as this wage (still from an individual employer) goes above £6032p.a. (but is less than 10k) then they can ask to join the company’s pension scheme and if they do join, the employer will have to contribute; over 10k from a single job means they are auto-enrolled with contributions from their employer regardless.
Despite the fairly low threshold for gaining pension contributions, being below £6032p.a. causes loads of issues, including a similar scenario around National Insurance (NI) contributions. Combine this with the ad hoc nature of gig jobs, which means periods with lower pay, and it becomes much harder for people to estimate how much they can contribute each month if they’ve opted for a private pension in the absence of a company scheme with contributions. As well as this, people who have no NI contributions do not qualify for jobseekers allowance, which requires two years contribution (more for migrants); something significant in a line of work where periods of unemployment are a potential issue.
Who does it affect?
With the appeal for job seekers to deliver and the demand for more and more fried goods to be delivered, there doesn’t seem any reason this kind of work will go away. But while the Deliveroo driver may be the poster-child for the gig-economy, there are many other workers who fall under this umbrella term and are subject to the same workers’ rights; or lack thereof.
The second group who are likely to have taken up casual work (as mentioned above) is migrants, especially those with limited language skills or accepted qualifications. For people who fall into this category, driving a taxi is one common work option. Uber is the biggest name in this area, especially for gig-work and the bad press around it, so as a result, they have been in court; as well as in the news.
In 2017 Uber lost its appeal over the category for drivers, as the taxi-firm claimed they should be treated as self-employed, but the courts ruled that their drivers should be classified as workers instead. This terminology may sound insignificant, but those categorised as workers receive far more rights. This is largely as Uber requires drivers to accept 80% of jobs they are sent, much like an employer – self-employed drivers would only do the work they wanted.
In the aftermath of the 2017 case, Uber have given their drivers a new compensation package in 2018. This includes:
- Sick pay
- Parental leave
- Bereavement payments
- Access to medical cover
- Compensation for work-related injuries
Despite Uber making steps forward when it comes to offering their workers more rights than before, unions are still suspicious, as it is felt drivers do not have all their statutory rights covered, and that the benefits/rights package could be pulled at any time.
While Uber should receive some praise for stepping up and protecting their drivers better, let’s not forget they have only just had a ban lifted which stopped them operating in London, after behind found ‘not fit and proper’ to hold a private hire licence by Transport for London. Irrespective of the steps Uber have made in 2018 to get back on track and repair their reputation, the bad press they are working so hard to shake off could have been avoided if they had understood the challenges of gig-economy employment better.
Closer to home a recent landmark decision was made to classify Gary Smith, a plumber working for Pimlico Plumbers as a ‘worker’ rather than an independent contractor, after initially dismissing him when he asked for reduced hours following a heart attack. Their dismissal of his rights as a worker has brought them some much publicised bad press and resulted in them changing contracts for all their workers. This shows that the gig-economy takes many forms and brings in to question the rights of all freelance or self-employed workers in general.
Debating these workers right is symptomatic of a changing workforce, where hours and contracts are likely to vary from person to person, and the concept of a ‘full-time job’ may be a thing of the past.
The lack of definition around gig jobs might mean the flexibility to make lots of money through loads of hours, but the lack of hours at other times means it’s hard for gig-workers to save for the future and to pay into, or get contributions for pension schemes. This means gig-workers need to get support in the future and find a way to save for pensions now.
What do gig-workers need to consider?
With this in mind gig-workers will need to ask themselves the following questions:
- How much will retirement cost?
- What is your status? E.g. independent contractor, worker, employee.
- What workers rights and contributions do you need for your lifestyle/outgoings?
- Will you be able to save a lot of money for your retirement?
- Can you afford to pay enough into a private pension yourself?
- Will it be possible to reach a threshold that will secure a pension and contribution?
- Is this kind of work going to be permanent or is it a stop-gap for a more traditional working pattern?
What does this mean for the business world?
As a business owner, or just an employee at a large ‘traditional’ organisation, the issues around the gig-economy are of interest, but might not seem relevant to your own working life. However, as with the examples of Uber and Pimlico Plumbing, many businesses use third-party workers on a regular basis, usually on the basis of freelance work. Generally, such individuals are briefed for a job, do a job and after a few tweaks, you pay them and may or may not use their services again.
Good freelance workers might be used regularly if they offer value to your company. Weekly projects might happen; they may work exclusively for your business a couple of days per week. The issue here, or the question, is what kind of workers are these? You should also ask if they are workers or if they are employees, what rights they are entitled to and if you offer any benefits beyond pay.
Many freelancers are happy with the independence their jobs bring, and don’t ask for anything else in return, but there is an assumption that this is always the case. Gig-workers for Deliveroo and Uber do have permanent employers: Deliveroo and Uber. This sounds obvious but the language around the gig-economy can make their workers sound like they are fully self-employed. Even in the kind of roles these types of companies offer, some rights should be expected. When the Uber debate began, Frances O’Grady of the TUC stated ''for many workers the gig-economy is a rigged economy, where bosses can get out of paying the minimum wage and providing basics like paid holidays and rest breaks’’; clearly the gig-economy is considered as much about slavery as it is freedom by some.
Powerful statements like the one from the TUC make workers rights a big issue for anyone hiring on a job by job basis as the status of anyone you employ, from full-time to a single job, matters.
The UK unemployment rate is now at its lowest for well over 30 years, which is good news overall. However trade unions (and other groups) say much of this is down to the poor quality, low paid jobs which are often zero hour contracts or not secure. The gig-economy is the only alternative, and the two may not be that different, as neither type of work offers security - making it very hard to get long-term pension contributions, build up savings or pay into a private pension.
With this in mind, it’s essential to think about how you would look after gig-workers if you employed them, as while they may seem like cheap labour to many people, it doesn’t matter what their status is – they are still being employed and need to be treated like any other employees. If you do look after these employees then they will look after your business by being reliable and flexible, which are real assets to any company.
On top of this, if the company of the future is made up of a huge amount of gig-workers, then competing for their business is likely to mean providing more than just a wage as an incentive to work for you. with this in mind, now might just be the time to consider what contributions you will make in the uncertain world of the gig-economy; because it might just become half the whole economy one day.