Self-employment and Labor Relations in the UK Construction Industry
Janet Druker and Geoffrey White
Labor relations in the UK construction industry are set within a turbulent environment, subject to a competitive contractual framework, a cyclical economy and fluctuating client preferences. In pursuit of clients and contracts, contractors squeeze costs and in doing so undermine employment standards. The price of a fractured, subcontracted industry has largely been paid by the UK’s construction workforce - predominantly self-employed and male. The effects are felt in an instability that is inherent in labor management and labor relations. Yet in some parts of the industry and on particular contracts, different patterns are discernible.
This chapter outlines differing perspectives on labor relations, considering the contrast between a market-driven approach to management in which employees have little voice and one in which employees have some opportunity for representation, typically through trade unions. It points to a conflict of interest in work relationships that has shaped current arrangements. The first section considers the structure of the UK construction industry, exploring the effects of subcontracting on the form of labor engagement and the prevalence of false self-employment. It identifies differences within and across the sector. It then points to the challenges inherent in contractual pressures and to some of the consequences and contradictions resulting from these arrangements - in skill shortages and reliance on a migrant workforce and in damaging consequences for workers’ health and safety. In the second section of the chapter, we identify' areas where management initiatives have been more consultative or collaborative and we ask why these have emerged. In the final, concluding section, we point to the coexistence of contrasting - indeed conflicting - standards as an inherent feature of contractor strategy.
The work is based both on published sources, including collective agreements, and on interviews with key participants in industrial relations in construction, including industry, employer and union representatives.
The Construction Industry and Self-employment
In the introduction to this book, we outlined fundamental differences in employer approaches to employment relations. This chapter points to the dominance of market focused and unitarist traditions in the UK construction industry. It highlights the underlying conflict between the major parties in the industry and the occasional appearance of pluralist practices, where alternative approaches to management are visible. Far from being mutually exclusive perspectives, this chapter points to distinctive management styles that co-exist, varying pragmatically by project, client and context.
The UK construction industry is a pressurized, insecure and too often a dysfunctional working environment. The inherent discontinuities associated with the intensive, competitive contracting environment render coordination and planning profoundly difficult, and successive reports intended to modernize the industry and to improve performance have failed to have the hoped-for impact (Green 2016). The first section of this chapter describes the industry’s modus operandi in terms of employment standards, training and health and safety.
In order to understand how labor is engaged and managed, we have first, to consider the way in which the industry operates. UK construction is part of a globally competitive market and some of the biggest firms are subsidiaries of American (e.g. Bectel), Australian (e.g. Lendlease) or European (e.g. Skanska) parent organizations. Asian contractors, for example the China General Nuclear Power group, are increasingly visible.
Work is divided between the private and the public sectors, with the private sector taking the larger share. The limited size of the public sector constrains the potential reach and impact of government and of modernization initiatives.
Each of the component parts of the industry fluctuates in terms of the level of activity but, in periods of peak activity, industrial and commercial buildings, schools and hospitals, housing, civil engineering and infrastructure may be competing for labor. Fluctuations in the economic cycle, in interest rates and in public expenditure have a huge impact on the level of activity. The insecurity within the sector is reflected in the structural changes of recent years and some of the family businesses and well-known companies of the last century have disappeared. The collapse of Carillion pic, one of the largest UK contractors, in 2018 led to shock waves as projects were halted, workers and subcontractors remained unpaid and the burden fell on taxpayers (Plimmer 2018). Insolvencies have risen in recent years with 3,106 in construction in England and Wales in the third quarter of 2019 - up from 2,792 insolvent construction firms just two years earlier (The Gazette 2020).
Work is predominantly project based and each project involves the creation of a team to co-ordinate and deliver the work required. Unless a client has a long-term program of work, with an established procurement process, each project team must be created from scratch, bringing together contractors and subcontractors. Processes and procedures are initiated afresh. The client is often more interested in results and cost and less in the process or in how the project is undertaken. Project teams are working across organizational boundaries and tend to recreate the patterns of work and the culture that have gone before, inhibiting innovation.
Only a small number of firms are significant employers, with the industry comprising many small firms. The growth in subcontracting and the fragmentation of the industry has led to a rise in the number of firms overall - from 202,407 to 325,736 (over 60 percent) between 2008 and 2018, with smaller firms (below 115 employees) making up over 99 percent of that number (ONS 2019: Table 3.1a Great Britain). The smallest firms - those with seven or fewer employees - constitute over 90 percent of the total. Firm registrations and contracts are concentrated especially in London and the south-east of England.
With notable exceptions, larger contractors have abandoned direct employment of the operative workforce. They define their role in terms of management of the contract, a responsibility which involves subcontracting, with subcontractors subcontracting in their turn, the process being repeated through a contractual chain which leads, ultimately to self-employed workers (Farmer 2016). This subcontracting process fragments employment and means that management of the supply chain is a critical issue for labor standards. From the contractors’ perspective, this may appear to facilitate flexibility and encourage a downloading of risk but the counter effect rests in the challenges to co-ordination and, on occasion, an absence of control at the locus of productive activity. It is a model which has been adopted by other employers in the so-called ‘gig’ economy where workers are designated - sometimes wrongly - as ‘self-employed’ and in this way deprived of their employment rights.
The workforce is predominantly male and although women sometimes find a place in professional and managerial roles, they are rarely engaged as operatives. Of the 2,310,000 workers in the industry between October and December 2019, 2,027,000 million were male and only 283,000 female (ONS 2020), a proportion (12 percent) that has remained broadly consistent over the last ten years. The culture of the industry inhibits female employment (Clarke and Gribling 2008), and women in construction encounter pay gaps that are worse than in other sectors. The UK construction industry is similar to that in other countries in that it employs seven ro eight percent of the total workforce - a figure that has diminished slightly as the UK workforce has grown in size.
Self-employment is common throughout UK industry and has grown significantly in other sectors but is highest within the construction sector. The number of self-employed construction operatives fluctuates according to the state of the industry but with a long-term tendency to increase - rising from 633,000 in September 2001 to 806,000 in September 2019 (ONS, 2019 - Table Jobs 2 December). The use of self- employed labor has a lengthy history within the industry and was resisted by trade unions for decades. Its use increased notably following the national building industry strike of 1972 when construction employers sought to break union influence, a process further encouraged by the Thatcher government after 1979.
The use of self-employed labor is not inevitable - it is not used to the same extent in some other European countries, for example, in Sweden which has a stronger regulatory regime (MacKenzie et al 2010; see Chapter 9, in this volume) - and is very much a matter of choice for the contractor or subcontractor. Self-employed workers have fewer employment rights and the work is less secure and more difficult to organize collectively. It offers a preferred form of engagement for contractors and subcontractors, who choose to outsource the management process thereby containing labor costs, offloading risks and avoiding union militancy.
The dispersal of self-employed workers is not uniform. Although the figures above suggest that around one-third of the workforce was self- employed in 2019, the proportion of site operatives who are self- employed is much higher. Professional and management staff are generally employed on permanent, open-ended contracts but there are parts of the industry, especially in London and the south east, where self- employment for operatives is the norm and where almost everyone is self-employed. In housebuilding, for example, the vast majority of work is done by subcontractors. The house builder acts as management contractor but then subcontracts all the work, which is largely undertaken by self-employed workers (interview: professional association representative). In repair, renovation and maintenance, self-employment is commonplace, whereas in engineering construction and in electrical contracting the proportion of operatives who are self-employed may be lower.
A special ‘Construction Industry Scheme’ (CIS) carries a tax status that offers the appearance of legitimacy to self-employed construction workers although in terms of their employment position and employment rights this self-employed status may not be substantiated. ‘False’ self-employment is common (Seely 2019). In legal terms, the distinction between employment and self-employment is opaque and although successive governments have discussed the potential for clearer tests to distinguish between these different forms of engagement, to date there are no specific proposals (Seely 2019). It is the employer who selects the form of engagement and while there can be benefits to both sides if self- employed status is used, there are also disadvantages for self-employed workers. The employer saves on National Insurance Contributions and offloads the risks of employment. Self-employed workers may benefit in the short term, because their payments for social benefits are lower than for employees and their taxation liabilities may be lower too, but in the medium to longer term they may lose benefits and state pension entitlement. Clearly there is a cost advantage for businesses that work in this way and firms that bear the proper costs of employment are at a competitive disadvantage. Although the loss of taxation income might seem, potentially, to be an area for government concern, governments have been reluctant to intervene, perhaps because in the existing industry (CIS) scheme they have something that is partially successful. It raises some income and this may be preferable, from the government’s perspective, to changes that could potentially be unpopular and which might be subject to new forms of tax avoidance and evasion.
The complex web of relationships involved in the deployment of workers on site is further complicated by the use of intermediaries to facilitate false self-employment and to arrange for payment to the worker. Agencies are used for all types of labor - including professionals and managers - but their use is especially common for self-employed operatives and it is often agencies that take the responsibility of placing workers with a subcontractor. In this way, the subcontractor offloads the risk of engaging workers on a self-employed basis when they should in fact be directly employed. The relationships are further complicated by the use of payroll or ‘umbrella’ companies that undertake to make wage payments - often charging the worker a fee. The payroll company pays the workers and when the subcontractor gets paid - maybe three or six months later - he settles with the payroll or umbrella company. The worker who receives payment in this way pays for the privilege, being charged to have their earnings paid into their bank account. These intermediary companies often avoid taxation through offshore locations (Seely 2019).
It follows then, from the perspective of the worker, that construction work is precarious and income insecurity a fundamental problem. Underpayment and late payments are common complaints and when work is interrupted, for example because of bad weather, there are few entitlements to benefit or to compensation.
The construction industry is segmented, with professionals and managers more likely to be retained on open-ended employment contracts. Other workers may be engaged through subcontractors, through agencies or other intermediaries and the ways in which workers are engaged and paid have important implications for training, and for health and safety on site and it is to these issues that we now turn.