There are now some 4.8M self-employed people contributing to the British economy, representing almost 15% of the total workforce. The resilience of self-employment growth in a variety of economic conditions – before, during and after the Financial Crisis – lead the ONS to conclude that the growth of self-employment is a structural feature of the UK labour market.
There are many factors at play in this growth of independent work. People want more autonomy and flexibility in their work. Sitting at a computer screen day in day out, working longer hours than ever before, for someone else no less, is a dated concept, invented almost 100 years ago and being abandoned by an ever increasing number of people. They want to do work that they deem as more meaningful. And the rise of the platform economy makes it easier than ever to ply a trade and skills to one-off gigs as a main source of income or as a supplement.
But, with this steady rise of self-employment there seems to be a trade-off between freedom and flexibility, and instability and uncertainty; in both the short term and longer term. There’s a problematic gap emerging as the safety net provided by companies (pensions, PAYE deductions, and even regular pay cheques) and governments (unemployment benefit) has been stripped back, shifting significant risks to individuals who choose to work for themselves. For the vast majority of these professionals, this is a new way to work and they aren’t prepared to ensure it works for them in the long-term.
Regardless of sector, income level, education, age – it comes down to the fact that the self-employed don’t have all the tools, information or financial product in their arsenal to forge ahead on their own in an empowered, well-structured way.
Consider something as simple as getting paid: cheques and cash are traditional methods of payment for the self-employed, but they then have to spend valuable time during their working day going to a bank branch to lodge their income.
The self-employed are getting used to apps and other tech solutions that help them get work, and make their working lives easier, just to then have to deal with their physical bank. In looking for a solution, the choice is generally between one designed for consumers without the basic features they need as a business, or solutions designed for larger businesses that, quite frankly, have to have an accountant or a banker to navigate. The result is that many self-employed sole traders don’t even bother trying to open a business account, they just use their personal account.
This is where fintech can come in to empower these workers, delivering tech-based solutions that address key frustrations that add real value for the self-employed.
Cloud accounting solutions like Xero and FreeAgent are moving the self-employed away from spreadsheets and shoe boxes for their record keeping. And payment solutions like iZettle, SumUp, Stripe and more have simplified the process of getting paid and transacting digitally.
Having focused on consumers initially, challenger banks have emerged to reimagine current accounts for the self-employed. Solutions like Coconut and Hatch Money are focused on self-employed and freelancers with features like receipt and tax tracking, while other challengers like Revolut, TransferWise and Starling are expanding from their consumer roots to service independent workers and small businesses.
The use of technology is also essential to deal with the biggest change to taxes in over a decade as HMRC’s Making Tax Digital is rolled out. As of April 2019, VAT must be submitted quarterly via Making Tax Digital using third-party commercial software. HMRC intends that quarterly self-assessment and corporation tax will follow from April 2020. Again, fintechs are at the forefront of helping the self-employed deal with this change, either combined with a current account like Coconut and CountingUp, or on its own with Taxo’d or cloud accounting.
But this is just the beginning, there are many more challenges to be addressed for the self-employed, and as the foundational elements of accounting and banking get addressed, we need to find sustainable solutions to challenges that the mainstream financial industry – and even government – has ignored.
In particular, the current safety net that employees rely on was developed for the industrial age that began in the first half of the last century with the development of social security, employer benefits supported by the financial industry and even collective bargaining. The future of work in the current information age is a very different prospect; it is less certain, more fragmented more mobile, more volatile and the very concept of the employer-employee relationship is breaking down.These factors underline the urgency of re-imagining the safety net for workers in this new age.
As Nicolas Colin so eloquently describes in his recent book, HEDGE: A Greater Safety Net for the Entrepreneurial Age, the safety net must be re-imagined in order to return to the virtuous circle that marked the post war boom when the industrial age was at its peak and avoid the many dystopian predictions for our shared futures. The financial system’s approach to workers is one of the three key pillars of the safety net that needs to be reimagined. Whether it is dealing with the variable nature of their income, having disability, life and health insurance, accessing loans and mortgages, or the massive longer-term issue of saving for retirement, these are all ripe areas for innovative fintech firms to really make a lasting, long-term impact on the UK’s self-employed sector.
Garrett Cassidy is CEO and co-founder of Trezeo. Trezeo’s mission is to play a leading role in defining and delivering financial products that provide certainty, stability and protection for the self-employed. Trezeo’s income smoothing service turns unpredictable income streams into reliable and regular payments, with no interest or hidden fees involved. The aim is to help the self-employed (including freelancers, consultants, giggers and other independent workers) build a predictable income and start to plan for a more empowered financial future.
This Blog post was originally published on The Global Banking Finance Review on August 31, 2018.