Construction union Ucatt commissioned The Great Payroll Scandal report which highlights the spread of payroll companies keeping workers classified as self-employed.
The largest payroll company currently has over 114,000 workers on its books.
Steve Murphy, General Secretary of Ucatt, said: “This report is highly significant as it details how workers have little or no option but to sign away their rights and be paid by a payroll company.
“Having been forced to accept this arrangement they then experience the double whammy of having to pay for the privilege.”
The report estimates that false self-employment throughout the construction industry is costing the Treasury £1.9bn a year.
Employers are the biggest beneficiaries saving £1.2bn annually by avoiding paying employers’ national insurance contributions of 13.8% per worker.
The report also revealed that the HMRC had virtually given up on enforcing employment status in construction, with the number of reviews it was conducting more than halving from over 1000 in 2009/10 to just 433 in 2011/12.
Murphy added: “False self-employment is costing the treasury billions every year. Given that fact it is simply unforgiveable that they are reducing their enforcement activity.
“This is making it far easier for unscrupulous employers to avoid paying their correct contributions and leads to workers losing their rights.”
Ian Anfield, Contracts Director at payroll giant Hudson Contract, said: “Just as in any other industry construction workers have the right to sell their services on a self employed basis – many prefer self employment as it allows them the opportunity to maximize their earning potential, and to develop from one-man-bands into businesses in their own right.
“Operatives contracted by Hudson Contract are clear about the risks and the benefits of self employment, and make
an informed choice.”