A balance needs to be struck between stopping false self-employment and ensuring that the UK construction industry retains its flexible workforce, according to the Recruitment & Employment Confederation (REC).

The REC’s comments follow construction union UCATT’s call for a government review of payroll companies in the construction sector last week.

Kevin Green, the REC’s chief executive, says: “We are committed to working effectively with the government to address examples of bogus self-employment. However, it is also critical for the UK economy that we promote legitimate self-employment.

“If we want to retain a dynamic construction industry in the UK we need to retain its use of a skilled and flexible workforce. Payroll companies help the self employed particularly with the administration of pay. Together with the review of IR35, we urge the government to look into this whole area as part of their commitment to help small businesses and entrepreneurs.”

Simon Noakes, chair of REC Construction, adds: “Recruitment agencies specializing in construction within the REC work hard to raise standards and to provide a first class service to employers and contractors. We fully support the effective enforcement of existing regulations.

“It is important to note that the vast majority of self-employed workers in construction choose to work in this way. The idea that contractors are somehow coerced into bogus self employment is wide of the mark. It is also important to recognise that construction businesses need a flexible workforce, especially as the market remains volatile with profits on projects being reduced.

“With landmark projects such as the Olympic Games in and Westfield shopping centre, there is currently over 5,000 construction operatives working in Stratford alone. Projects of this stature make the need for a flexible workforce greater then ever.”

But Stuart Davis, chairman of the Freelancer and Contractor Services Association (FCSA), supports calls for an investigation: “Fraudulent employment practices deny employees their rights and take money from the Treasury. It is therefore right that government investigates this matter rigorously.

“But it is vital to distinguish between the highly-skilled, professional contractor who chooses to work flexibly, and the oppressed worker forced to change his employment status to keep his job. The UK’s legitimate flexible workforce contributes £21bn to the economy and continues to provide crucial flexibility for the economy across a wide range of sectors as it recovers from recession.

“FCSA members provide true employment solutions, not just payroll solutions – a ‘gold standard’ for the freelancer and contractor services industry recognised by HM Revenue and Customs and which should become the standard to which all companies aspire.”