A new report published by construction union UCATT exposes the increasing use of payroll companies in the construction industry.

The report establishes how payroll companies are being used to codify false self-employment in the industry and how this is costing the Exchequer hundreds of millions of pounds a year in lost revenue.

The UCATT commissioned report The Great Payroll Scandal by Jamie Elliott details how workers are forced to sign contracts with payroll companies in order to obtain work. By signing the contract, while the worker is in reality an employee for a construction company, they are officially classed as self-employed. Due to their self-employment status the workers are stripped of even their most basic employment rights. To add insult to injury the worker has the payroll company’s charge (usually between £10 - £25 per week) taken directly from their wages.

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The number of construction workers being paid via payroll companies has increased dramatically in recent years. The largest payroll company, Hudson Contracts currently has over 114,000 workers on its books.

Steve Murphy, General Secretary of UCATT, said: "This report is highly significant as it details how workers have little or no option but to sign away their rights and be paid by a payroll company. Having been forced to accept this arrangement they then experience the double whammy of having to pay for the privilege."

The report estimates that false self-employment throughout the construction industry is costing the Treasury £1.9 billion per annum, with the principal beneficiaries being employers who save £1.2 billion per annum by avoiding paying employers’ national insurance contributions of 13.8 per cent per worker.

False self-employed workers can be sacked without warning, do not receive holiday or sick pay, do not have a pension, have reduced benefit entitlements and are denied access to employment tribunals.

While there are clear rules on employment status, which is not a matter of choice, the report also revealed that the HMRC had virtually given up on enforcing employment status in construction, with the number of reviews it was conducting more than halving from over 1000 in 2009/10 to just 433 in 2011/12.

(CD/GK)