Shifting the risk

There is large scale noncompliance with basic employment rights in the UK labour market.

Up to 580,000 workers are being paid below National Minimum Wage (NMW) rates. At least 2 million workers do not receive legal minimum paid holiday entitlements, missing out on £1.6bn in paid holiday per year. Existing enforcement mechanisms are clearly failing many workers.

This report looks at how they should be strengthened, particularly in a climate where organisations are proactively taking steps to transfer their employment law and tax obligations to other parties.

Organisations are using a range of strategies to transfer accountability to other parties. This leads to them having little responsibility for the people who do work for them. These include:

• Outsourcing - contracting out tasks, operations, jobs or processes to an external contracted third party for a specific period. Companies providing outsourced services employ 3.3 million people across the UK
• Franchising – a franchisor grants a licence, which entitles the franchisee to own and operate their own business under the brand, systems and business model of the franchisor. Franchised businesses employ over 615,000 people in the UK
• Use of labour market intermediaries to source workers – the use of recruitment agencies, umbrella companies and personal service companies means organisations can avoid the employment law and tax obligations of directly employing their workforce. We estimate that there are approximately 2 million people employed via labour market intermediaries
• Developing complex supply chains – hiring additional individuals or companies (subcontractors) to help complete a project and transferring liability to organisations further down the supply chain 

In this report, we highlight how these strategies operate across a range of sectors, eroding the accountability that an organisation has to its workforce. This fragmentation of the labour market makes it more difficult for workers to enforce their employment rights. We’ll demonstrate the negative impact on workers, including:

• Confusion over who their employer is and who has responsibility for employment rights
• Restricted access to employment rights
• Deteriorating terms and conditions
• And breaches of basic workplace rights.