MJ, I think your title of the thread is a little melodramatic and the reality of this is it effect very few people. I am guessing from your tone that there is some history there somewhere?
Most schools I know have the full timers on PAYE and the part timers can be either. Which makes sense to me.
No it isn't. The vast majority of schools/clubs operate this way. For part-time FI's who have proper jobs, then this matters not a jot, but for the backbone of the instructing community (The poorly paid airline seeking newbie) this will make a huge difference.
If this helps clubs sort their lives out and pay a living wage to Instrcutors, then this should hopefully benefit all in the long run. Though there will be casualties along the way.
Whether these casualties are missed, is a different matter.