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TUC calls to ban umbrella companies
by Susie Hughes at 11:17 12/08/21 (News on Business)
Calls by trade union body, the TUC, to ban umbrella companies have been branded as 'misguided' and a 'knee jerk reaction' by representatives in the sector.
The TUC says the 'scandalous' workplace practices associated with umbrella companies have 'no place in modern Britain'.

An umbrella company is essentially a payroll company, used by recruitment agencies to operate a PAYE (pay-as-you-earn) system for the agency workers that they find work for. In many cases, the umbrella company will also employ the agency worker, with the agency workers becoming 'employees' of the umbrella company.

Fragments employment relationship
The TUC says that umbrella companies create multiple issues which mean it is difficult for workers to exercise their basic rights.

The union body says in particular, workers face misleading and unfair deductions from pay, adding that breaches of holiday leave and pay entitlement are widespread - with umbrella companies preventing workers from taking their holiday entitlements.

It also claims that 'the use of umbrella companies fragments the employment relationship', leaving workers unsure of who to speak to resolve problems and often “passed from pillar to post” when trying to sort out their issues.

The TUC cited reports that some umbrella companies promote and coerce their employees to use tax evasion schemes, leaving workers potentially facing huge future tax bills.

Increased use
The union body is warning that the use of umbrella companies could spiral post-pandemic because of a combination of changes to the IR35 tax rules which have come in this financial year and the increase in agency work.

The much-criticised IR35 or 'off-payroll working' rules will potentially make employers liable for the tax and national insurance contributions of the contractors that they engage with. Government guidance states that the off-payroll working rules are unlikely to apply if you are employed by an umbrella company.

The TUC predicts that transferring contractors to umbrella companies will be seen by some companies as a convenient way to continue to 'shirk their tax and employment rights obligation'.

Post-pandemic
New TUC research estimates that half of agency workers work for umbrella companies. Recruitment agencies have been used through the pandemic for key worker roles that needed to be mobilised quickly, like vaccinators and testing staff.

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The TUC is concerned that post-pandemic the number of agency workers will increase – and therefore umbrella workers too – as companies scramble for new staff amid reopening and labour shortages in some sectors.

The TUC warned that there is no proper regulation of the sector, because the Government has failed to task any of the enforcement bodies with regulating the umbrella sector, despite a recommendation from the Taylor Review into Modern Working Practices, that enforcement of umbrella companies should be stepped up.

The union body says this is a 'gaping hole in enforcement' and lets down some of the lowest paid and most insecure workers.

In order to clamp down on the umbrella companies, the TUC is calling for:

  • An outright ban on umbrella companies by requiring employment agencies to pay and employ the staff they place with clients
  • Joint liability laws in supply chains, that make the end client and any contractor in the supply chain responsible for upholding the legal rights of those working in the supply chain
  • Greater trade union access to workplaces and new trade union rights.

TUC General Secretary Frances O’Grady said: "These scandalous workplace practices have no place in modern Britain. But our inadequate regulations let dodgy umbrella companies off the hook – allowing them to act with impunity.

“Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries.

“Enough is enough. It’s time for Ministers to ban umbrella companies, without delay.”

Reaction - FSCA
Representative body of the supply chain, the Freelancer and Contractor Services Association (FCSA) said that it shared the frustrations that the TUC had highlighted but did not agree that the answer to rogue umbrella companies is to ban all umbrella companies.

It is the view of the FCSA that this is a knee jerk reaction to a sector that has come about through necessity and that to suggest that recruitment agencies be the provider of contingent labour is also misguided.

The FSCA issued the following statement:
A contractor may move from contract to contract on almost a weekly basis with day rates for their work varying on each contract. Recruitment firms realised long ago that to have for example one thousand contractors on their books moving through thousands of variable rate contracts whilst actually being their employer was logistically impossible. The same contractors will then typically move from one umbrella to another around three times per annum.

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We must also remind ourselves that recruitment firms are experts in recruitment and the unique legislation that comes with that territory. To employ a contingent worker through large numbers of contracts whilst also employing them whilst they are not actually working on a contract requires detailed knowledge in taxation, accountancy and employment law as well as a detailed understanding of highly complex software management systems.

Recruitment companies are simply not equipped to properly manage and employ such a varying workforce. Hence the existence of umbrella firms. To simply suggest that umbrella firms be banned is not workable and ultimately will disadvantage the freelance worker.

It is a fact of life that working practices have shifted over the last thirty years to more flexible models and the current work and social environment will further encourage flexible and freelance working.

The TUC should be pro-active and actually ask the question, how can the contractor workforce best be protected?

The TUC is correct in saying that the umbrella sector is rife with truly terrible practices that victimise the contractor. Let’s be blunt; these practices actually rob contractors on a large scale.

Equally, HMRC are also robbed of essential tax revenue that could be supporting essential services. The criminal element is determined to become very rich on the back of these practices and so banning umbrella firms will simply move these individuals into other forms of so-called contractor support services where the crimes will simply continue but under another guise.

In this regard the TUC should be very careful of unintended consequences that ultimately may make the contractor community more vulnerable to exploitation.

The FCSA recognise the terrible actions of an increasingly growing criminal element who are preying on contractors. The whole reason the FCSA was set up was to provide end hirers, agencies and contractors with a lawful, compliant and ethical choice in the absence of proper protective regulation and efficient policing. That is why the FCSA has always called for regulation and tighter and more specific employment legislation to protect contractors and the supply chain.

There are compliant and ethical umbrella firms out there both within and outside of the FCSA. But there are a growing number of companies that are emerging with the sole intent of becoming rich at the expense of workers and HMRC. Why? Because for twenty years the Government has failed to put in place robust, protective legislation that protects workers and compliant umbrella companies. It is beginning to do so now, but only after years of pressure from the FCSA and others in the sector.

Furthermore, the Government has failed to, in any way, effectively police the sector.

The TUC is correct in that some operators are acting with impunity and so the FCSA were deeply disappointed to see no mention of an Employment Bill or umbrella regulation this year. Another year in which criminal activity will no doubt grow.

This sector should not be banned. It and its contractors need robust legislation, meaningful regulation and most importantly an investigation and prosecuting body that has knowledge and real teeth. FCSA member companies are compliant, and they welcome a more intense scrutiny and enforcement of the sector. This action is now urgent.

Through a lack of action by the Government, the task of protecting contractors and ensuring they have full employment rights (as the FCSA Codes of Compliance insist on and independently assess) is becoming harder as many unlawful, rogue companies now use (often to the ignorance of contractors and the supply chain) highly sophisticated software to base themselves offshore in countries that do not have extradition treaties in place with the UK. And so, a final consequence of banning umbrella companies may be the immediate alternative of seemingly tax efficient employment models based outside of the UK being offered to freelancers inside the UK.

The result will be that HMRC cannot touch the directors of those companies and so will pursue the contractor for non-payment of taxes that the worker thought they had already paid. Sound familiar?

The banning of umbrella companies would simply create an even greater compliant and ethical void that would ultimately make the outsourced worker even more vulnerable.

It’s tough, but the TUC and trade union movement realised over one hundred years ago that you could not simply ban mill owners or mine owners or landowners. What the union movement realised is that you had to fight hard for the legislation and enforcement of that legislation to isolate and remove criminal employers in those industries. That is what the umbrella industry now needs, and I hope the TUC can revisit their own past and join bodies like the FCSA to keep up the fight for long term solutions through legal redress and prosecution.

Is this the right course of action? You decide, but it is worth noting that not one director of a company offering loan schemes to contractors has seen the inside of a prison cell and those people have actual blood on their hands through the suicide of contractors caught up in those schemes. If that example doesn’t show that we need urgent government attention to this sector, rather than the banning of it, then nothing


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