The Low Incomes Tax Reform Group (LITRG) has highlighted that some people on zero hours contracts will not see the full benefit of any premium added to the National Minimum Wage. This is because of knock on deductions in their entitlement to welfare benefits. LITRG is also concerned about how employers would react to such a premium, and has set out its own recommendations on how the Government could better support these vulnerable workers.
The doubts and concerns were raised as part of LITRG’s response to a consultation by the Low Pay Commission looking at the Taylor Review’s proposal to introduce a premium rate of pay for hours which are not guaranteed – the ‘Taylor premium’. Review author Matthew Taylor believes that this premium will lead to such workers getting more guaranteed hours and, where it does not, that it will mean they get a bit more income to compensate them for the risk and insecurity.2
LITRG Chair Anne Fairpo said:
“While this seems on the face of it a good idea for low income workers, we actually have some doubts as to whether the ‘Taylor premium’ will help tackle the issue of ‘one sided flexibility’ and workers experiencing uncertain and unpredictable work schedules.
“In particular we are concerned at the ways in which a ‘Taylor premium’ could interact with the workers’ tax, National Insurance position, related tax credits and welfare entitlements. Some workers will not feel anything like the full benefit of the premium. In addition, there are potentially serious financial consequences for those who might currently qualify for ‘passported’ benefits such as free school meals.’’
In its submission, LITRG illustrates how in some cases the ‘Taylor premium’ will benefit the Exchequer more than the workers.3 LITRG also points out that this measure does not seem to do much for those who are already paid at slightly more than the minimum wage. If the premium is 15 per cent – then someone on the £7.83 rate will have their hourly rate lifted to £9. However, if they are already on £9, it seems their pay will stay at £9.
Anne Fairpo said:
“We think it is too simplistic to say that employers could just move workers to set hours contracts if they do not want to pay the premium – many need the flexibility of non-guaranteed hours to manage the peaks and troughs of their business. It also does not follow that they will simply absorb the cost of the ’Taylor premium’ themselves.
“We are concerned that certain employers facing higher labour costs might decide to turn to other options to protect their profitability, such as the cutting of hours, with potential knock on consequences on working tax credit claims and any other provisions that are based on number of hours worked.
“We have particular questions over what will happen in the care sector, as it is not clear to us where the money will come from to fund the premium. In the agency worker sector, our overriding feeling is that we will see an increased use of exploitative models based on self-employment, which will leave the low-income worker in a potentially worse situation than they are currently.”
LITRG says that despite its concerns about the impact of the ‘Taylor premium’, it is nevertheless concerned about those on zero-hours contracts and, in particular, unfair practices such as having shifts cancelled at the last minute. LITRG highlights that there are some measures that the Government could also take within the current framework to help these workers better understand and manage their positions, which include:
- Vastly improving the provision of information about rights and protections for workers – there is still a dire need for basic information about what low-income workers on such contracts should expect in relation to holiday pay, etc.
- Tackling blacklisting (the practice of not being offered any more work if they turn down work or raise a grievance).
- Undertaking an assessment of challenges in tax credits and universal credit faced by low-paid care workers with volatile income or hours – with a view to easing the burdens that are currently placed on them by those systems.4
2. Matthew Taylor says the proposal aims to achieve two alternative benefits: ‘First, the wage premium for variable time would encourage employers to think a bit harder about whether they need so much work to be through zero or nominal-hours contracts (ZNHC)s. The consequence should be that more people who are customarily asked to work longer than the time specified in their contract will get more guaranteed hours with consequent benefits for their economic opportunities and security. The second benefit is that those low paid people who continue to be on ZNHCs will get a bit more income to compensate them for the risk and insecurity.’
3. Higher pay means things like paying tax (usually 20 per cent on anything over £228 a week in 2018/19) and National Insurance (12 per cent on anything over £162 a week in 2018/19) and paying more in pension contributions (three per cent of your wages over £116 a week – although, if you are lucky, some of this may be made up from tax relief). It may also impact on the amount of in-work benefits you receive, as the higher your wages, the less you get in benefits. For universal credit purposes, there is a 63 per cent withdrawal rate on ‘net’ income over £409 per month. For working tax credit purposes, there is a 41 per cent withdrawal rate on ‘gross’ income over £6,420 a year.
Example: Jenny, 35, a lone parent usually works around 20 hours a week in a pub, at the minimum wage on a zero-hours contract. At £7.83 per hour there is no tax or NIC (earnings of £156.60). Because she is on a low income, Jenny receives UC of £457.943 per UC assessment period. If her hourly rate were to rise to £9 an hour (£180 a week), then her award would be £404.42 per UC assessment period. At £9 an hour, there is also NIC at 12 per cent on her earnings above £162 per week (£2.16) (but no tax).
So, of her £93.60 increase in terms of gross earnings during her UC assessment period, the true value of the Taylor premium to Jenny is only £31.44. The Treasury accrues the remaining amount in reduced welfare payments and increased NIC revenue.
4. Other LITRG recommendations include:
- Extending the system of NIC credits, as exists for those on Jobseeker’s Allowance for example, to workers on very low earnings. A person in work arguably deserves to have their contributions record protected to the same extent as an unemployed person.
- Strengthening care workers’ positions under the minimum wage rules, which could in turn help regularise the heavy use of non-guaranteed hours contracts in the sector (this should include dealing with the complex inconsistencies between the minimum wage rules and the tax and tax credits rules).