Government urged to introduce regulations to protect umbrella company contractors

The Low Incomes Tax Reform Group is joining the growing calls for regulation of umbrella companies and has shared advice for the workers using them in order to avoid common issues.

The LITRG is joining voices such as Matthew Taylor (author of the 2017 Taylor review of modern working practices), the Trade Union Congress (TUC) and the Association of Independent Professionals and the Self-Employed (IPSE), to create regulation for umbrella companies in order to protect the workers who contract through them.

Victoria Todd, Head of LITRG, explained, “Umbrella companies have been in the news a lot recently: there was the furore about an umbrella withholding holiday pay from workers, the loan charge APPG’s report linking umbrella companies to disguised remuneration and now concerns about the use of mini umbrella companies. Added to the negative practices by non-compliant umbrella companies highlighted in our own recent report, it is clear what the problems are in this area and that some action is needed.

“The government previously set out a number of proposals which would, if implemented, be the first steps towards regulation of the sector. It is disappointing that none of these proposals have been taken forward. Government must make these actions a priority as well as giving serious consideration to what other steps might be needed.

“Regulation would drive away those umbrella companies that do not respect employment law, which will help protect lower paid agency workers who are vulnerable to exploitation. As they are likely to be the umbrella companies that are also non-compliant with tax law, there is a potential double benefit. There are also wider impacts. For example, non-payment of holiday pay is likely to be impacting considerably on gross wage levels, meaning lower receipts for the Exchequer.

“It was in 2017 that Matthew Taylor first mooted the idea of regulation but nearly four years later, there has been no progress, even though the Government accepted his recommendation. Indeed, it seems further away than ever, given the post of the Director of Labour Market Enforcement, who provides strategic direction for the enforcement bodies, is currently empty.”

Concerned with the lack of understanding about how umbrella companies work by the workers who use them, the LITRG has released the following advice:

• Anyone can set up a company and label itself an umbrella company. Some are not compliant with employment and tax law and the sector is currently unregulated. It is vital that you are on guard.
• Be aware that some agencies are incentivised by a commission into encouraging you to join up to certain umbrella companies.
• Be clear on what rate your agency is quoting you to work through an umbrella – is it the PAYE rate (the rate they would pay you if you worked through them) or is it the ‘uplifted rate’ (that is, the PAYE rate plus all the ‘on top’ employment costs the umbrella company will now have). It should be the latter (uplifted rate).
• Make sure your umbrella company is not a disguised remuneration scheme.
• Make sure you do not get caught up with problematic ‘mini’ umbrella companies. The key giveaway is that your payslip will have different PAYE references – as much as every week – with obvious impacts to the Exchequer but also to you – as you will never be with any one employer long enough to accrue any rights, and you will have an unusual and fragmented employment record, which could impact on you in many ways.
• Check how the umbrella company will deal with your holiday pay – if it is not on a ‘rolled up’ basis ask them to confirm the circumstances in which you may lose the holiday pay (for example, if you do not request it before the end of the holiday year). If you leave the umbrella company, ask them to confirm that all outstanding holiday pay will be paid to you with your final payment.
• Do not get swayed by all the different ‘perks’ that may be advertised. Some of these may be worth very little, e.g., same day bank transfers (which are pretty standard these days), or may not be relevant to you (e.g., tailored mortgage deals). Some may carry an extra cost over and above the standard ‘margin’.

To find out more about contracting please contact Sophie on 01206 591 000 or email sophie.lewis@contractoumbrella.com.