Uncovering the diversity of the self-employed sector

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Understanding the sector's diversity can help businesses attract, engage and retain the best talent

Abstract

As evidenced by last year’s Taylor Review into modern working practices, and this year's government response to it, more people than ever are opting for the freedom and flexibility of self-employment. The UK’s self-employed population has grown by 20% since 2011. The 4.8 million people working for themselves now make up 15% of the entire UK labour force. As self-employment has risen, however, so too has a pernicious myth about the self-employed: that they are all alike and can be treated in the same way. This myth has affected businesses and policymakers; leading to a one-size-fits-all approach.

This Centre for Research on Self-Employment (CRSE) report reveals the true diversity of the self-employed, exploring the different segments of this vital workforce: their incomes, their specialisms, and their levels of security and independence. By revealing and exploring this diversity the report opens the door to a better way for businesses to attract, engage and retain talent from across the self-employed workforce. And for policymakers to – as the CRSE was pleased to see evidenced in the government’s recent response – legislate according to the flexibility and diversity of today’s modern labour market.

What’s new

Since the beginning of the boom in self-employment around the turn of the 21st century there have been a number of attempts to classify the various constituent parts of the flexible labour force.

Previous research, however, has always taken a narrower view of the self-employed workforce, attempting to classify the different segments based on quite limited personal and work characteristics. Although these studies have helped to build up a significant body of research, they have generally only produced a broad snapshot of the different segments of the self-employed workforce. They have not allowed for more nuanced analysis and the development of a truly segmented approach to the self-employed.

Without research clearly showing the diverse segments of the self-employed workforce, policymakers and businesses have mistakenly treated this varied sector as all alike. Either they have adopted overly prescriptive approaches that have limited the freedom so valued by secure, wholly independent freelancers, or they have taken an excessively laissez-faire approach that has left insecure, more vulnerable self-employed people struggling.

The CRSE’s report set out to change this. The aim was to produce a clear picture of the self-employed sector that is detailed enough to allow businesses and policymakers to adopt a truly segmented, effective approach. Having a detailed report of the differences between the various segments should allow policymakers to improve conditions across the sector, and also help businesses to more effectively attract and retain different self-employed people.

To achieve this level of detail, the CRSE’s report divided the sector up based on three key factors: economic wellbeing, independence and security.

Behind these were a range of more specific considerations. Economic wellbeing was defined predominantly by earnings. Independence was defined by the number of clients individuals had, their level of autonomy, whether people saw themselves as having a ‘job’ or a ‘business’, and whether they had separate personal and business bank accounts. Finally, the level of security self-employed people had was defined by whether or not they had a pension and whether or not they were looking for alternative work.

Key findings

The CRSE found that the self-employed sector was even more diverse than anticipated. Based on the three factors, the report defined nine different segments (see below) ranging from ‘low pay, dependent and insecure’ to ‘high pay, independent and secure’.

Although there were many differences between the nine segments there was one factor that connected almost all of them: general satisfaction with their work.

The majority (eight of the nine segments) of the self-employed workforce said they were as satisfied or more satisfied than employees doing similar work. The only segment that said otherwise was segment one: ‘low pay, dependent and insecure’, dominated by drivers and cleaners. Work satisfaction was actually highest not in segment nine but in segment four. The majority of the self-employed sector (53%) reported high levels of independence and security in their work.

This was driven by people in segments three, seven, eight and nine. High independence and security were also reported by most in the broader segment six. People in these groups reported high levels of autonomy in many different aspects of their work; from their choice of task to their way of working. This suggests genuine self-employment across these segments.

Among these high independence and security segments are the two largest groups of the self-employed sector: segments three and six. Between them these two groups total 1,657,000 people – 42% of the entire solo self-employed population.

The truth behind the headlines

It has become common for people to see the highly-publicised examples of exploitation in the gig economy as representative of all self-employed engagements.

But the CRSE’s research found that only a small proportion (15%) of self-employed people have such limited autonomy and lack of control in their work. The dependence of these people on their employers, however, does raise questions about their status as self-employed. They are spread between segments one, four and five.

The CRSE’s research showed that the majority of the self-employed do not fall into this category and are much more independent and autonomous than their media portrayal perhaps suggests.

A slightly higher proportion of the self-employed seem to be in insecure work: approximately 825,000 or 21%. These were spread across segments one, two and four. Self-employed people in these groups tend to be less qualified, with less financial security – and often without pensions or savings for later life. People in segments one and four may be in need of particular attention because they have low degrees of both independence and security.

From research to reality

So what are the practical applications of this research? First, the division of the self-employed into nine clearly-defined segments should allow organisations and HR departments to take a more diversified approach to freelancers: one that recognises the differences between different self-employed groups.

Another of the key applications is improving conditions for freelancers in general, particularly by changing policymakers’ approach. One notable effect of the report was to highlight how confusion over the legal definition of self-employment is harming the entire sector – and how important it is for policymakers to resolve this. At present, while both ‘worker’ and ‘employee’ status are clearly defined in UK law, there is no statutory definition of self-employment. Among the best of the government’s recommendations in responding to the Taylor Review was clarifying the confusion about the legal definition of workers, employees and the self-employed.

Legally defining self-employment would not only guarantee the freedom and independence of higher-end freelancers, it would also help to provide the clarity needed to distinguish between different groups of less financially secure self-employed people, some of whom may perhaps be better classified as workers.

With this in mind, another important application of the report is to make organisations aware of the role they have to play in improving self-employment. Now the report has highlighted the insecurity and dependence of a proportion of the self-employed workforce – and outlined which groups this is most likely to affect – it is up to responsible businesses and HR departments to make sure they avoid bad practice and always take on freelancers on the right terms.

The detail in the report should also allow businesses across the UK to consider how they can more effectively attract, engage and retain freelance talent. In particular, businesses and HR departments should focus on enabling the control and independence almost all freelancers value.

One of the most striking findings from the research was the importance of training across the self-employed sector. Especially in the most dependent, least secure segments, lack of training and skills development opportunities seemed to be one of the biggest factors holding self-employed people back. So one of the report’s key recommendations was to incentivise training and make it more accessible. It would also help businesses to attract and maintain the best freelance talent. The CRSE therefore especially welcomes the government’s Taylor Review response commitment to ‘improve pension provision among the self-employed’ and ‘develop a consistent approach to employability and lifelong learning’.

After all, it’s not just employees who need to upskill and develop: freelancers need to train too. And as this vital and diverse sector of the workforce grows it is in everyone’s interests not only to properly understand it, but also to ensure it is as skilled and effective as it can be.

Suneeta Johal is the director of the CRSE

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