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COVID-19: Public sector PSC contractors protected via Government double standard

The Cabinet Office and the Treasury have confirmed that contractors providing services to Government projects via limited companies will be protected by measures introduced to support contingent workers impacted by COVID-19.

The news comes weeks after Government announced that limited companies – or ‘personal service companies’ (PSCs) – would be largely excluded from the Self-Employed Income Support Scheme (SEISS).

Despite insisting that it “is right that the public sector does whatever it can to support all our employees and contingent workers”, the Treasury has refused to respond to questions concerning the absence of comparable support for limited company contractors in the private sector.

“The support offered to limited company contractors on Government projects is wildly inconsistent with the measures introduced for the wider public, and reeks of hypocrisy,” says ContractorCalculator CEO Dave Chaplin.

“Government clearly values the services provided by its limited company contractors enough to offer them support through the coronavirus pandemic. Why isn’t the same support on offer to limited company contractors outside of Government?”

Government public sector instructions inconsistent with SEISS

Following the announcement of the SEISS, a published Cabinet Office briefing detailed instructions concerning payments made to contingent workers unable to work due to COVID-19. Acknowledging that limited company contractors are within scope of the measures, the briefing states:

‘If Contingent Workers are unable to work due to COVID-19, for example, due to sickness, self-isolation, or the temporary closure of offices, they should be paid at 80% of their pay rate up to a maximum of £2,500 per month. This should be backdated to 1 March 2020 if necessary and will be available initially for at least 3 months.’

Though the rate of relief provided is consistent with the SEISS, the treatment of limited company contractors is not. This is highlighted in a Government briefing on the SEISS, which states:

‘Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.’

The exclusion prevents limited company contractors from securing relief that has been made available to all other self-employed with trading profits up to £50,000. Meanwhile, comparable relief is available to furloughed employees regardless of their annual salary, via the Job Retention Scheme (JRS).

Though limited company contractors are permitted to apply the JRS to PAYE salaries paid out by their company, the sum of relief secured will be negligible, given the fact that they typically receive most of their remuneration via dividend payments.

“While affected limited company contractors providing services to Government will receive 80% of their pay rate, thousands more are only able to claim relief on the small sums paid out each year via salary,” notes Chaplin. “For many, this will equate to roughly £400 per month.”

Why is Government treating its own contractors differently?

Earlier this month, a Cabinet Office spokesperson confirmed to ContractorCalculator that limited companies were within scope of the measures to be applied by all central Government departments and public bodies, commenting:

“These regulations are designed to protect contingent labour supply chains, ensuring talent is available not just at this most critical time of need, but also into the future.”

When approached by ContractorCalculator, the Treasury simply added: “It is right that the public sector does whatever it can to support all our employees and contingent workers.”

Notably, both departments refused to address the brazen disparity in terms of treatment for limited company contractors inside and outside of Government, leaving Chaplin to draw his own conclusions:

“Government clearly recognises the value provided by limited company contractors, and evidently doesn’t want to risk losing access to key skills when work resumes. We can only assume this is the reason behind the shameless double standards on show. The message we’re getting is Government is happy for UK contingent workers and projects to suffer, providing it manages to take care of its own.”

Published: 20 April 2020

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