30 July 2021
The Trades Union Congress (TUC) has called for umbrella companies in the UK to be banned. The union body says the scandalous workplace practices associated with umbrella companies have “no place in modern Britain”.
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 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.
According to the TUC, “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 union body is also warning that the use of umbrella companies could spiral post-pandemic because of a combination of IR35 changes this year and the increase in agency work.
“The 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 stated.
UC 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.”
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.
New TUC research estimates that half of agency workers work for umbrella companies. 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.
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
Last month, the Department for Business, Energy and Industrial Strategy published its consultation report which confirmed that the UK’s new enforcement body for workers will also regulate umbrella companies.
Shazia Ejaz, Director of Campaigns at the Recruitment & Employment Confederation (REC), responded to TUC’s announcement.
“Recruiters want a robust and fair supply chain, where workers’ rights and pay are protected and all parties’ responsibilities are clear,” Ejaz said. “There are many compliant umbrella companies out there which provide valuable services, but clearly there are too many which act unethically and exploit loopholes in the law. These bad-faith companies have been allowed to thrive alongside legitimate businesses for too long.”
“We’re glad that the government is moving forward with the creation of a single labour market enforcement body which will have the power to regulate umbrella companies,” Ejaz said. “We also advise our members to always conduct rigorous due diligence on their supply chains, and have published guidance on what to look out for when working with an umbrella company so that recruiters can ensure they operate with fairness and transparency.”
Dave Chaplin, CEO of contracting authority ContractorCalculator said, “Whilst there have been calls for more regulation, experience indicates that rule books, whether statutory or self-made, are rather meaningless unless there is actual enforcement.
“Not surprisingly, the fraudsters aren’t scared by unenforced regulation – which is why some are happy to call for more of it, knowing that they can just carry on with limited (or no) oversight,” Chaplin added. “Payroll transparency and monthly independent party auditing is where the market needs to head, and some are already leading the way on that.”
Crawford Temple, CEO of Professional Passport, an independent assessor of payment intermediary compliance said, “It is surprising to hear this call from Frances O’Grady as the Loan Charge APPG report commissioned by the TUC did not call for a ban. Whilst there is a lot of regulation already in place to address malpractice in the industry, a blanket ban is not the way forward and the call by the TUC serves to demonstrates a lack of understanding on how compliant umbrellas work to support workers.”
“The government needs to address the underlying issues and challenges that our industry faces as a matter of urgency, namely non-compliance, transparency and enforcement,” Temple said.
The Freelancer & Contractor Services Association called the TUC’s announcement a ‘knee jerk reaction’ to a sector that has come about through necessity.
“To also suggest that recruitment agencies be the provider of contingent labour is also misguided,” the FCSA stated.
From the umbrella industry, Clarke Bowles, Director of Strategic Sales at umbrella firm Parasol said, “It is disappointing to hear calls from TUC to ban umbrella companies, once again lumping compliant and ethical providers together with tax avoidance scheme promoters and even fraudulent models.”
“The umbrella industry has come under increasing scrutiny since the introduction of the off-payroll reforms in the private sector and rightly so, but unfortunately there is still a lack of regulation in the industry and more worryingly a lack of enforcement surrounding existing legislation. Unsurprisingly, this means there are providers out there who are pedalling tax avoidance schemes and fraudulently dressing them up as legitimate umbrella companies,” Bowles said.
“Action must be taken against these providers and we at Parasol would support any action to shut these businesses down. However, there is a place in the supply chain for compliant ethical providers, who offer a valuable service to contingent workers,” Bowles continued.
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