It is estimated that up to 600,000 temporary workers in the UK are employed by umbrella companies. They are used by recruitment agencies and businesses to reduce temporary payroll costs, which are usually charged to the workers instead. According to government estimates, the problem costs workers and the government up to £4.5 billion in fraud and misappropriation.
As evidence mounts of unscrupulous umbrella companies exploiting workers, the government is working on new rules for the temporary labour market.
In response to a government consultation, the TUC stated that the business department's Employment Agencies Standards Inspectorate (EASI), which may be tasked with enforcing the new regulations, only has one-fifth of the officers required by UN standards.
According to the TUC, despite being forced to use umbrellas, independent contractors who are not classified as "agency workers" may still fall outside the scope of regulation under current proposals.
Since the government changed tax rules for contractors, the use of umbrella companies has increased significantly, including in the NHS and education system. Last year, there was a lot of news stories showing evidence of possible umbrella company tax evasion in the test-and-trace programme.
What can umbrella companies do that is illegal?
Holiday Pay:
Umbrella companies that either don’t remind workers about the holiday pot or have very restrictive policies which make it hard to use leftover holiday (for example, not allowing any carry over to the new year, or unnecessarily complex approval processes.)
Benefit to the umbrella company:
If the umbrella pockets just 3 days of holiday per year, the umbrella keeps:
● £1340 per worker, per year (IT worker on £500/day)
● £257 per worker, per year (care worker on £12/hour)
National Insurance Contributions:
Workers are employed by unknown umbrellas, companies with strange names or the umbrella often changes. Looking up the company details on companies house often reveals overseas directors.
Workers were either forced or unintentionally opted out of agency conduct regulations.
Workers are made to, convinced to, or simply without their knowledge, opted out of the Agency Conduct Regulations. These important protections prevent umbrella companies from withholding pay (even if they’ve not been paid), prevent them from blocking workers from taking up a permanent role with the end employer, and prevent the umbrellas from charging the worker for ‘work-finding’ services.
Opting out is made a verbal condition of gaining work, but commonly the opt-out is simply placed next to the signature page on the contract, appearing like it’s mandatory.
The benefit to the umbrella:
Varies – opens the door to unscrupulous practices
The bottom line
The government's proposed solutions fall far short of what is required. Hundreds of thousands of workers who use umbrella plans may be denied coverage because they are not agency workers. In addition, there aren't enough inspectors to ensure that businesses follow the rules.
Get in touch! We Can Help.
Datum RPO can help you to manage your agency providers, ensuring that the workers they provide are legally compliant, as well as deliver significant cost savings.
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