In August the Treasury announced they were considering introducing ‘mini-jobs’ which allow people to take on work without paying tax or national insurance, as a way to boost employment.
Mini-jobs are modelled on a German scheme introduced in 2003 that allows workers to earn €400 (approximately £315) per month tax free, while their employers pay a reduced flat rate to cover pensions, national insurance and employer tax contributions.
In Germany, people can hold several mini-jobs up to the €400 monthly threshold (or a mini-job can be additional to their main job). Between €400 and €800, workers pay tax on a sliding scale. Having a mini-job does impact if they become unemployed later though, as it reduces their unemployment benefit over a certain threshold.
The most recent figures from Germany, in September 2010, showed that 1 in 5 workers (7.3 million) held mini-jobs, with most of these types of jobs to be found in the service sectors (catering, hospitality, construction etc).
While some say it is one of Germany’s job ‘miracles’ (that has played a key role in reducing unemployment figures) there are many critics of the system.
The UK Treasury is believed to be studying a version of Germany’s mini-jobs scheme which would allow employees to have as many mini-jobs as they liked but only one with the same employer. The mini-jobs could be taken on top of PAYE existing employment and one mini-job would also be permissible on top of welfare payments.
The critics of the German scheme say:
- It widens and entrenches the low-paid and temporary work sector, causing wage inequality (Germany does not have a national minimum wage – it has wage agreements by industry sector but these are not necessarily binding on all employers)
- Employees get less chance to build up a works pension
- The Government lose out on income tax receipts
- There is a risk that Employers may split one job up into several mini jobs to reduce their income tax liabilities
- It doesn’t address the causes of UK unemployment, particularly for young people
- Business leaders have warned this will mean more red-tape and confusing regulation
Holger Bonin, labour market expert at Germany’s ZEW think tank said of the scheme:
“It was sold as a way to bring the long-term unemployed back into the labour market. Employers would get to know an employee and then hire them on a permanent basis. But that hardly ever happens. In fact the long-term unemployed find it harder to get a full-time job now as these jobs don’t exist any more. Full-time jobs are being divided up into mini jobs. One should be very sceptical about introducing such a system.”
At present, workers in the UK can earn £8,105 a year before they start paying tax – equivalent to £675 a month – so any new cap in the UK would need to be higher than that currently in place in Germany.
The potentially positive points of such a scheme are:
- Obviously for employees having a mini-job as an additional job would be good financially
- It may motivate employees to take on extra work knowing they won’t pay income tax on it
- It could motivate people on welfare to take a job
- Mini-jobs may bring a little of the ‘black’ job economy into the ‘formal’ job economy
Watch this space to see what the Government does with this!
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