Proposed protection for the self-employed: how will Statutory Self-Employment Pay work for contractors and agency workers alongside the Job Retention Scheme?

Written on 24 Mar 2020

As the government grapples with how best to protect the contingent workforce as well as employees, contractors and agency workers will need to understand how the two proposed schemes would work together:

Statutory Self-Employment Pay

The House of Commons Public Bill Committee has proposed an amendment to the Coronavirus Bill, entitled Statutory Self-Employment Pay (SSEP).

If accepted (which looks likely), the government will introduce Regulations allowing for "self-employed people" and "freelancers" (neither terms defined) to qualify and receive guaranteed earnings of:
(a) 80% of their monthly net earnings, averaged over the last three years; or,
(b) £2,917 per month
whichever is the lower.

The proposal would involve the government to ‘topping up’ self-employed workers’ earnings to the guaranteed level.

What are the big questions?

This is good news for self-employed contractors, (potentially) consultants working through personal service companies, sole traders and freelancers, who may not qualify for support under the Job Retention Scheme. However, there will be a number of questions around eligibility and level of "top up" available, and the government has already indicated that coming up with a scheme that works properly for these types of worker is not easy (not least because of the multiplicity of ways in which they trade).

We don't have any further details at this stage. We hope that, once the legislation is finalised, early guidance will be issued to make the position clearer (to the extent the final legislation does not make it clear). The following are likely to be some of the areas requiring clarification:

  • Who will be regarded as self-employed or freelance? Presumably CIS subcontractors will be regarded as self-employed for these purposes even though earnings may be paid under the CIS net of a deduction on account of their PAYE and NIC liability.
  • What about PAYE workers and umbrella workers?
  • What will and what will not be included in "earnings" for sole traders such as self-employed consultants and tradesmen? Will expenses be included as part of earnings? We currently expect that to be linked to the profits from the sole trade or profession. The reference to "net" suggests the figures are after all deductible expenses. Clearly, any reliance on cash in hand income will not count towards any declaration of earnings.
  • How will PSC contractors (or other owner-run companies) be treated? Often owners will take a small wage or payment from the company itself (as the worker/employee) and take the remainder of their income as dividends in their capacity as shareholder of the company. How will the rules apply to them and will the dividend element (which itself is investment income) be captured by either of the Statutory Self Employment Payment (SSEP) or a Job Retention Scheme?

Where will PAYE workers and umbrella workers fit in?

The issue of agency and umbrella workers in particular is far from clear. It seems that agency and umbrella workers or any other worker who is paid via a PAYE payroll may not qualify for support under the SSEP. It may be that they would qualify for support under the Job Retention Scheme (details below). However, until we have seen more detail around the 'furlough' requirement it's not entirely clear whether PAYE workers and other workers on zero hours arrangements will qualify for this either – if they are only paid for when they work and paid nothing for when they don't, how can they be said to be on furlough?

Given the government's clear intention to provide protection where it is needed, we suspect that HMRC will not (at least initially) take issue with an application to allow PAYE workers and/or umbrella workers to benefit from the Income Protection Scheme, but it will be important for agencies and umbrella companies paying workers and employees to adjust their models to cater for furloughing requirements even if, technically, the zero hours types of arrangement many of them use would at first sight not require a furlough. And when making these adjustments they will need to take care not to adopt a stance about the status of their workers which in due course might open them to retrospective claims of other types (along the lines of "if you are now saying their status was X all along why did you not pay Y in respect of them in the past?").

What about PSC contractors?

If the SSEP is available to PSC contractors, it seems that the SSEP may be the better option for them but this this will depend on the following factors (and the final detail of the SSEP and Job Retention Scheme in relation to some of these factors):

  • Whether the SSEP will also be back-dated to 1 March (as is the case with the Job Retention Scheme).
  • How the PSC contractor's net earnings will be calculated - will dividend income and expenses be included as part of earnings? How will policy-makers feel about subsidising out of taxpayer funds the income of people it has been saying for several years do not pay enough tax?
  • Whether the contractor's average net earnings were more than £2,500.
  • Whether the contractor is able to continue working. The proposed SSEP is a top-up and there appears to be no suggestion that it would require the contractor to stop working and earning: i.e. their business would not have to close, as it would with the Job Retention Scheme.
  • How the furlough arrangement would operate under the Job Retention Scheme for a PSC contractor who is the only decision maker and worker in the business.

Ironically the PSC contractors whose status under these schemes may be clearest is the ones who have deemed themselves or have (often to their great disappointment) been deemed as 'inside IR35'.

In light of these considerations, staffing companies should consider working with end clients to hold onto their PAYE or umbrella-employed contractors for a few more days at least, even if they are not required to work (and thereby will not receive pay). That might possibly put them in a better position to take advantage of possible solutions for those contractors – as long as they still have a contract in place.

We will update you as and when we receive more detail.

And for ease of reference here is our analysis (issued yesterday) of the detail of the proposed Job Retention Scheme.