Pay freeze takes public service into the twilight zone

Opinion: The Government says a pay freeze will rein in the pay of ‘Wellington bureaucrats’, but it’ll probably just encourage more of them into the grey area of contracting, writes Dileepa Fonseka.

On the same day Labour were in Wellington announcing a pay freeze for government employees, a group of businesspeople at the other end of the North Islandwere discussing the exact opposite.

Some of the country’s top company directors were packed together in a hotel conference hall for an Institute of Directors eventwhere former Delaware Supreme Court Judge Leo E. Strine Jr told the audience they should add an extra ‘‘E’’ to the term ESG.

ESG is the term for the environmental, social and corporate governance responsibilities companies are increasingly taking on. Strine was arguing companies should really be adding an extra ‘‘E’’, for employees, to this acronym and possibly even forming workforce committees to ensure their staff were better looked after.

Company directors are increasingly turning away from the ‘‘Uber-isation’’ model of employment. Most think it doesn’t do them many favours in the long run. One, it’s bad for their brand, and two, it’s bad for their bottom line because they end up paying through the nose for staff as theirworkforce turnover increases.

That is why it’s difficult to understand what the Government will achieve through this recent move to effectively freeze the pay of the majority of our public servants.

I doubt shaving a few dollars off public servant pay will save much money. I seem to be joined in this assessment by the Public Service Commissioner, who told media he doesn’t know how much money this will save, and even seemed to admit it could fall at the first collective bargaining hurdle.

The money the Government does save won’t be at the expense of those muchvilified ‘‘Wellington bureaucrats’’. Your typical bureaucrat has a very easyway out of this pay freeze and that’s to negotiate with their boss to become a contractor.

The Public Service Association (PSA) told the Government this in a letter at the end of April, just as they began to get wind of these changes.

‘‘Experience shows thatwhen the pay rates of employees in hard-to-staff roles like IT are kept down then employers are incentivised to engage people as contractors (so avoiding pay restraint expectations for employees) so that they can recruit or retain them by paying them more,’’ they wrote.

The PSA says the Government currently spends nearly $1b on contractors. You only have to attend one or two house parties of older millennial folk (millennials are nearly 40 now) in Wellington to realise this billion-dollar figuremight actually be an underestimate.

Business case ‘‘bros’’ of disputable talent are a dime a dozen in the capital and bounce from one government contract to another effortlessly. No need to feel too sorry for their lack of employment rights.

There’s a limited amount of transparency around these roles within Government. They’re not included in statistics around its ownworkforce, while information on them can often be hard to obtain even via the Official Information Act. Thatmeans Government can effectively avoid a lot of scrutiny by employing people as contractors rather than employees.

Yet not every public servant can convert their role into a contractor-type arrangement, which is where the other element of unfairness lies. Frontline public servants like police officers exist within tightly controlled workplaces, making them unlikely to ever be able to claim contractor status. Back-end staff have a better claim to being classed as contractors.

This brings us to the other contradiction in thismove. Up until now the Government has often been highly critical of the ‘‘Uber-isation’’ of employment by private companies. Now it seems to be incentivising its own employees to embrace it.

Aministry of Business, Innovation and Employment report released in 2019 says dependent contractors exist in a ‘‘grey zone’’ between employee and contractor status. They operate their own businesses and may use their own equipment, but depend on one firm for most of their income and have little control over their daily work.

The same report says all contractors are ‘‘in a vulnerable position, lacking both the protections offered to employees by law, aswell as the power to negotiate a better deal’’.

All of which is true of contractors, even handsomely rewarded ones. If this most recent move on the pay freeze encourages more of them to become contractors then we’re surely not too far off a time when we’ll effectively have a significant second-tier government workforcewhich exists largely off the books.

It’s a situation which could create all sorts of risks further down the line. Employment rights exist to protect both employees and employers. They have evolved over a long period of time to take a lot of complex situations into account.

If we remove large numbers of people from this system then we should have a good reason for doing so, because we also run the risk they end up in a situation where they are unfairly dealt with later on.

There are a lot of situations which could arise where we might want people to have employment protections, even if they’re a contractor. What if a contractor is bullied? Or harassed, or is simply unfairly treated by their taxpayer-funded boss?

All of these are points you’d think would never have had to be made to a Labour Government.

Then again, you probably never thought you’d hear a public sector pay freeze being proposed by one either.

I doubt shaving a few dollars off public servant pay will save much money at all.