New research carried out by the Institute for Employment Research at the University of Warwick for the Equal Opportunities Commission, entitled The Lower Earnings Limit in Practice: Part-time Employment in Hotels and Catering, shows that the majority of employees did not understand that if they do not pay National Insurance Contributions (NICs) they would remain more or less permanently outside the social protection systems. The research focused on the hotel and catering industry which employs a higher proportion of low paid employees than any other industry.
Over 2 million low paid workers are not eligible for key contributory benefits, such as the state pension and unemployment, sickness and incapacity benefits, because they do not make National Insurance Contributions (NICs). The Government has made reforms but future changes must meet the needs of this disadvantaged group and ensure that low paid workers are fully aware of all the drawbacks of not making NICs.
The hospitality sector provides a particularly clear illustration of the pitfalls of intermittent working. Because of the fluctuating nature of the work in this industry some people pay contributions erratically, perhaps by working seasonally with periods out of the labour market. The money they pay on NICs is effectively 'lost', because entitlement is based on qualifying years rather than on an assessment of lifetime contributions.
Older women can be the biggest losers as they have more often had substantial periods out of employment and have irregular contributions. They are therefore not entitled to pensions or unemployment benefit in their own right and have to rely on their husband's pension or Income Support. With divorce rates increasing, even more low-paid women are likely to have no pension provision when they retire. However some of the younger women who were interviewed worryingly also believed it was not worthwhile to pay NICs because the state pension would no longer exist, or its value would be so small by the time they reached retirement.
The Equal Opportunities is urging the Government to ensure that the vast majority of part-time and low paid workers have access to work related benefits. This could be done by setting a new threshold to determine entry to the system, such as minimum working hours or minimum earnings. People with more than one job also need to be brought into the system in a way which recognises their full contribution to the labour force and gives them access to social welfare entitlements. The researchers see the main problem as government's failure to take account of the changing workforce structure .They conclude:
"A large proportion of new jobs in hotels and catering...have been part-time, related to employers' enthusiasm for improving labour cost-effectiveness and, in particular, have drawn on the student labour market. This means that disadvantaged workers will find it increasingly difficult to find employment which covers their full subsistence needs and enables them to make provision for the future. This suggests there is likely to be an increase in dual-jobholding and reliance on the state social welfare system to complement low earnings". The researchers also note that "due to the strict rules governing benefit entitlement, low paid workers often pay National Insurance contributions from which they are unlikely to receive benefit: the 'lost contributions'". The researchers believe that an assessment of lifetime contributions, rather entitlement based on qualifying years, would be fairer.
Note to editors: The authors of the report were Kate Purcell, Abigail McKnight and Claire Simm, the research was carried out by the Institute for Employment Research, University of Warwick. Kate Purcell is now at the Bristol Business School, University of the West of England, and Abigail McKnight is now at the Centre for the Analysis of Social Exclusion, London School of Economics.
For further information about the research, contact:
Professor Kate Purcell (0117 344 3476) email:firstname.lastname@example.org, or Claire Simm, University of Warwick 024 76 522125.
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