The rise of the self-employed: how should employers respond?

Estimated reading time: 5 minutes

The UK has seen a significant rise in self-employment in recent years but this has passed relatively unnoticed (‘under the radar’).  There are now just under five million self-employed people in the UK, making up a significant 15% of the total UK workforce.

The number of self-employed people has grown by 1.6 million people since 2001, when they made up 12% of the workforce.  Despite this growth, the self-employed have been a relatively under-researched group.

This increase is fuelled by the rise of the gig economy, with people working as freelancers for a range of different clients, rather than being directly employed by them.  Advances in technology have supported this growth by giving people greater choice over the type of work they do, when they do it and where they choose to do it from.  Increasingly, the self-employed are not having to compromise financial stability and security to achieve this choice and flexibility.

"Increasingly the self-employed are not having to compromise financial stability and security to achieve this choice and flexibility"

The gig economy has also been supported by the emergence of online marketplaces. These connect freelancers with clients looking for specific knowledge and expertise, adopting a 'talent on demand' approach.

So what does this mean for the traditional way of employing people directly and contractually?  In the UK, this is already under strain due to record levels of employment, key skills shortages, rising employment costs, higher levels of voluntary employee turnover and poor levels of productivity.  The growing self-employed market increases this strain by reducing the pool of talent available to recruit from, made worse when employees leave organisations to become self-employed.

We undertook research among a representative selection of the self-employed to understand more about their working lives and the opportunities and challenges they face. This allowed us to compare this group against UK employees who are directly and contractually employed by an organisation.

Self-employment is a relatively new experience for some; 11% have opted to become self-employed in the last twelve months and 39% over the past five years. The proportion of single people is higher among the self-employed at 23%, compared to the 17% among those employed directly.

Our working assumption that flexibility, variety, choice and job enrichment are major drivers of self-employment is reinforced by the survey results telling us that 87% enjoy the work they do, compared to just 58% among those directly employed by an organisation. The self-employed are more likely to be making better use of their skills and abilities and this gives them a greater sense of fulfilment.

The self-employed have a greater awareness of the need to proactively look after themselves, with 59% having made health and wellbeing improvements to their lives in the past year, compared to 42% of those employed by an organisation. This may be because they know that there is less financial support to rely on if they are unable to work because of illness.

Not surprisingly, personal financial awareness and understanding among the self-employed are high and they are better equipped to financially cope in an emergency than those directly employed by an organisation (46% of the self-employed would not be able to cope for more than three months, whilst this figure rises to 58% of those employed by an organisation).

One worrying element of the survey results is that, despite their high levels of financial awareness, the self-employed live very much for today.  Only 38% of this group contribute anything into a pension, or other retirement savings vehicle, with the average contribution being 2.75% of their income and only 7% contributing more than 10%

The traditional benefits offered by employers (other than a pension) are of limited interest to the self-employed. Life insurance is the only benefit being taken by more than one in five of our survey respondents (29%). A private pension is of interest to 42% but 21% say they don’t need it.  Private medical insurance is of interest to 40% but over half (52%) say they don’t need it. All of this could potentially be an issue for government and society with an increasing proportion of the UK working population facing potential poverty in retirement.  

The challenge for organisational employers is that the traditional workplace and employment experience, propositions, policies and ways of working are starting to feel dated. They are less valued by the working population of today and this will probably also be the case for the working population of tomorrow. As a result, self-employment appears to be an increasingly attractive alternative, where these people feel happier working with organisations rather than being directly employed by them.

“As a result, self-employment appears to be an increasingly different and attractive alternative, where these people feel happier working with organisations rather than being directly employed by them.”

Organisational employment propositions need to be based on understanding, and responding to, the changing lives and needs of the workforce today, tomorrow and beyond. There needs to be greater consideration given to what supports the creation and sharing of value, rather than taking a blanket “one size fits all” approach.

Employee benefits are a good example of this, with the self-employed having much greater flexibility and personal choice based on their circumstances, needs and lifestyle preferences. Conversely, there appears to be a gap in the market provision of appropriate longer term savings and sufficient pension to the self-employed.  This is one area where organisational employment still offers a comparatively better deal.

With employment costs rising, organisations also need to consider the long term sustainability of their current employment models.  They need to look at whether their levels of directly, contractually employed people should be lower and whether they should make greater use of the self-employed.

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