Chapter 4: A Futile Chore
Footnote: Bureaucracy: Incompatible Modes of Employment
The capitalist free market facilitates many administrative protocols through which one may exchange one's labour for money. Unfortunately, most are mutually incompatible. They cannot be mixed. In a market of increasing diversity, turbulence and short-termism, this seriously restricts one's options.
A Permanent Job
Like most people at that time I started my working life in what is called a 'permanent' job. Officially, a job qualifies as 'permanent' only if it lasts at least a year and a day. It is also understood to be full time. This implies that the employee works exclusively for one employer for at least 35 hours a week. This 35 hours or more is also understood to be the employee's prime time - ie: his best and most productive waking hours.
In those days, a permanent job usually lasted for an employee's entire working life. The employee depended on his employer for all his needs of life. It was a form of bondage. The employee was not legally bound to his employer. Nevertheless, in most cases, he was bound economically. It was an unequal relationship. The employee was expected to trust his employer implicitly. The employer was universally regarded as upright and true. The employer, on the other hand, did not trust the employee. It was accepted by all that an employee had always to be watched, monitored, checked and supervised. Consequently the employee had to work when, where and how the employer dictated. He had to report each day to the employer's premises where he could be constantly observed. If he were ever 'seen to be' performing below expectations or committing a misdemeanour, then he would be dismissed.
At times during the 20th century, socially minded legislators placed legal obligations for employee welfare upon both employers and the state. During latter decades, however, capitalist interests have successfully engineered a steady erosion of their effectiveness.
Part Time Work
Socialist legislation has steadily increased an employer's obligations to his permanent employees. Temporary employees, however, have no such protections. To circumvent these obligations employers are switching increasing proportions their workforces from permanent to temporary status. Jobs are ceasing to be permanent and full-time. They are increasingly becoming fixed-term and part-time. Within a year and a day one's job ceases. The whole job market becomes ever more turbulent and fluid. With a larger proportion of opportunities becoming part-time it is increasingly necessary for one to have more than one job.
Over the past 22 years, family circumstances have made it impractical for me to meet an employer's insistence that I be present on his premises for 35 to 40 hours a week. I needed to be based at home. The only way I could realise this need was to become self-employed. I had to set up in business and work for 'customers' or 'clients'. Instead of being paid a wage, I had to invoice those for whom I worked and hope they would pay me. In the event, too large a proportion chose not to.
To be able to do my work I needed the tools of my trade. Being a software developer these obviously included an up to date computer system. They also included an office desk, filing cabinets and all the other office paraphernalia. For an employee, these are provided by the employer entirely at the employer's expense. The self-employed, on the other hand, have to buy and maintain them out of what they are paid for the work they do for their clients. The self-employed person also has the cost of seeking out and marketing himself to a large base of potential clients.
Because the client does not have the expense of providing the self-employed person with office accommodation and equipment, he pays him that much more in fees than he pays an employee in salary for doing the same job. Consequently, the self-employed tend to 'turn over' in revenue considerably more than an equivalent employee does in salary. Nevertheless, bearing in mind the self-employed person's operating costs and insecurity, he is unlikely to be any better off. Otherwise a greater proportion of people would choose to be self-employed.
A self-employed person - a so-called free-trader - is legally required to become VAT registered if his total turnover exceeds a certain threshold. This threshold is below what most must turn over to be economically functional. All work done by a VAT registered individual attracts VAT (Value-Added Tax). At least this is what I was officially told at the time I enquired. That includes any work one may do as an employee. The protocol for paying an employee and deducting tax etc has no provision for paying VAT to an employee. There is thus a barrier of practicality to a VAT registered individual taking a permanent or even a part-time job with an employer.
A VAT registered person can always de-register. That is provided his does not have a self-employed turnover above the registration threshold. Then he can take a part-time job to bolster his income while his self-employment business is riding out a recession. However, as soon as his self-employed turnover exceeds the registration threshold, he must re-register immediately. This is extremely difficult to manage. He must estimate in advance the point at which to re-register and begin charging VAT on his invoices. If he is found in retrospect to have been late, he will have to return VAT on work for which he failed to charge it.
In any case, a self-employed person is at a great trading disadvantage if he is not VAT registered. He has to pay 17½% (the rate of VAT at time of writing 1998) extra for all his business costs and capital equipment than do his registered competitors. If he buys from a registered supplier to sell on to a registered customer he either has to reduce his profit margin by 17½% or make himself 17½% more expensive to his customers than he would be if he were registered. Furthermore, if he is not registered, prospective clients are loath to regard him as a proper business. It portrays him as a fly-by-night.
On the other hand, employers offering part time work frequently will not trade with a person on a self-employed basis. They insist that the individual becomes a part time PAYE (Pay As You Earn) employee. An example of this was when a local college was keen for me to lecture on programming to an evening class. Their administration would not allow me to invoice them for the hours I taught. They would only pay me as a part time employee. Being VAT registered it was not possible for me to become their part time employee without de-registering. To do that would confuse my few remaining clients who would wonder what was happening. It was a simple thing made impossible by a combination of ill-devised dysfunctional law and corporate bloody-mindedness.
It is possible to circumvent this problem by setting up and working through one's own limited liability company. In this case, the company is registered for VAT rather than its proprietor. Its proprietor is then employed by the company as a PAYE employee. The proprietor is then free to take an additional part time PAYE job with another company as and when it is expedient to do so. I tried this to my cost in the late 1980s. It has two critical disadvantages.
- The company has to be audited every 6 months by chartered accountants. This is prohibitively expensive.
- The proprietor has to be paid a regular salary by his own company. Because he is on PAYE the company has to pay the tax on his salary to the Inland Revenue each pay period.
For one person working alone, there can be long periods when no money is coming in. There is the inevitable majority of late payers. There are those who do not pay at all. There are times when one has to develop a new product before one can start selling it. In these circumstances a self-employed person simply tightens his belt so to speak and draws less from his business until revenue starts to flow in again. However, an individual working through his own limited liability company has to pay tax and national insurance at a fixed rate for each pay period. This is normally each month. This places impossible borrowing demands on his business which incurs interest costs which he cannot afford. In fact, in any given year, the proprietor's company may not receive enough revenue to pay the salary it is paying him. The company cannot reclaim the tax until the following year. The company and its proprietor end up paying interest for a year on money they strictly never should have had to pay.
Thus the administrative protocols of self-employment and working for an employer are mutually incompatible. They cannot be mixed.
Over the past 22 years this incompatibility has been for me one of the greatest causes of lost opportunity.
Over my past 8½ years of unemployment I could have continued the telephone support services I was providing to my former customers. This would have given me an income of £300 per customer per year. In return for this they would be able to telephone me from time to time for technical help on the software with which I had provided them. I could possibly have found about 10 such former customers initially who would have been willing to subscribe to this scheme. The potential revenue could be £3000 a year.
However, once I had received the extra £3000, my bank account level would exceed the £3000
savings limit. State welfare would then be reduced and I would have to live on the excess capital. I would not therefore be able to meet the postal, telephone and other costs of supporting the service. Furthermore, because I am receiving State Welfare, I am obliged to be actively seeking work with an employer. In the unlikely event that an employer offered me a job I would have to take it. The subscribers to my support service would then be left high and dry after having paid a full year's support. To have offered these services knowing the circumstances would have been to deceive my clients. It may even have been illegal.
For these reasons I have had to turn them down. The result is that they still telephone me and I end up giving them the technical support free simply because I do not know from one week to the next whether I will still be available. The irony is that I have 20 installations throughout the U.K. who are currently running the software for which I could provide this service. I could potentially recruit enough of them sooner or later to make State Welfare unnecessary. But I am simply not free to take on a long-term commitment or make any long-term plan.
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©May 1998 Robert John Morton