TUC’s call to ban umbrella companies is met with scepticism
The Trades Union Congress (TUC) is calling for an outright ban on umbrella companies, stating the “scandalous workplace practices” have “no place in modern Britain.”
However, industry experts have hit back, taking the view that while greater regulation is needed, “there is a place for umbrellas and proof that it is possible to run umbrellas fairly, ethically and profitably.”
The move from TUC comes after the trade union published a report, which states that the use of such intermediaries could spiral post-pandemic because of a combination of IR35 reform and an increase in agency work.
Following IR35 changes, which came into force in the private sector in April of this year, the responsibility for determining a contractor’s IR35 status was transferred from the contractor to the end client engaging them.
Firms likely to transfer contractors to ‘shirk tax obligations’
The TUC states that given IR35 reform does not apply to those working through an umbrella company, it predicts that many hirers are likely to transfer contractors to umbrellas in order to “shirk their tax and employment rights obligations.”
Research by the TUC estimates that around half of agency workers work for an umbrella company, which is likely to increase post-pandemic as businesses scramble for staff amid labour shortages in some sectors.
The TUC warns the “gaping hole in enforcement” in the umbrella sector is letting some of the lowest paid and insecure workers down.
Its report explains that lack of regulation has led to workers being misled or coerced into using tax evasion schemes as well as facing unfair deductions from pay and breaching holiday and sick leave entitlement.
‘Inadequate regulations let umbrella companies off the hook’
In order to clamp down on this, the TUC has called for a complete ban on umbrella companies and instead, recommends employment agencies pay and employ the staff they place with clients.
The trade body also suggested joint liability laws in the supply chain that make the end client and contractor responsible for upholding legal rights.
Frances O’Grady, TUC General Secretary, said: “Everyone deserves decent work. But too many low-paid workers are denied the wages they were promised and basic legal rights like holiday pay because they work for umbrella companies.
“Lots of them are the key workers we all applauded – like social care workers, teachers and Coronavirus testing staff.
“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.”
Experts say there is still a place for umbrella companies
While experts have welcomed the call for regulation of the umbrella sector, a number are firmly of the opinion that there is still a place for such intermediaries in the supply chain.
Rebecca Seeley Harris, Chair of the Employment Status Forum, said: “The TUC report on the umbrella industry emphasises the need for the market to be properly reviewed and regulated.
“However, an immediate outright ban would be very complex to implement overnight because of the legislative timetable and the time companies would need to unravel arrangements.
“We also believe there is a place for umbrellas and proof that it is possible to run umbrellas fairly, ethically and profitably.”
‘Concerning’ Matthew Taylor’s post is still vacant
She explained that while regulation is the best approach, it will take “considerable time to introduce.”
“In the meantime, the TUC’s recommendation to use the Conduct Regulations and HMRC enforcement is one that we highlighted in our policy paper and fully agree with”, Harris added.
“However, in order to drive this forward, the vacant post of the director of labour market enforcement still needs to be filled. It is deeply concerning that 18 months after Matthew Taylor left it is still open, and undermines the declared intention of the government to clean the market up.”
Few companies have ‘full sight of labour supply chain’
James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, also backed the TUC’s call for regulating the supply chain.
He said: “Too few companies have full sight of their labour supply chain. End clients have no idea they are using umbrellas when they engage with agencies and recruiters, in the same way, millions of contracted staff have no idea they are employed through an umbrella.
“The use of umbrellas has become an uneasy bi-product of the IR35 reforms and just as IR35 holds end clients accountable for employment choices, so the same should apply to umbrellas.
“Until there is a legal obligation to prove supply chain ethics in the labour market we fear little will change to improve workers’ rights in this regard.”
“There is a way to run umbrellas ethically and at a profit”
Profit is from the worker the umbrella is a parasite it neither is required or has any purpose other than to fund itself.
I support the union ban them.
I am working through an umbrella company and the IR35 rule DOES apply.
Working through the umbrella company enables me to make efficient payments into my SIPP which I could not do if I was PAYE through the agency.
Interesting comment about umbrellas and SIPPs, thankfully I’ve stayed outside ir35 and pay employers contributions into my sipp. When I researched it no one seemed happy about pension arrangements through their umbrella and only employee contributions seemed possible.
As to the vaccine, trade unions represent all their members and are concerned about health&safety so they’re unlikely to support vaccine refuseniks.
I found two umbrella companies that were willing to pay employer contributions into my SIPP – OrangeGenie and Parasol. I chose OrangeGenie as they accepted the T&Cs from my agency.
What do you actually get for the % you throw at the corrupt umbrella Co? Any roll (£3 a day in reality )
Pension ? NO
Health Care ? NO
The risk of them closing the door and taking your hard earned cash ? YES
They are vermin
Unions were once important forces to support protect the workers, now what have they become, they raise concerns about people forced to use umbrella companies due to ir35 but ignore those being forced to take the jab or lose their jobs, what double standards 100% compromised organisation
Umbrella’s aren’t automatically a problem (simply because there were so many dodgy ones operating loan schemes in the past). The good umbrellas charge only a small fee and provide efficient PAYE. What IS a problem is the way that many agencies, just offload “inside IR35” contractors to umbrellas, with no regard to treating them as (albeit temporary) employees. Seems to me that many Agencies want to have their cake and eat it, carry on treating skilled contractors as disposable resource, and make any issues the problem of the umbrellas! That is where action is needed. Outside IR35, I’m content to manage the ebbs and flows of income payments inside my own company, but inside IR35 I expect a damn sight more respect from the Agency, not to be worrying about whether they can be bothered to pay umbrella invoices on time with no regard to my income at the end of it!
Umbrella companies are Government sanctioned rent seekers, nothing more.
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Well, that seems to have touched a nerve – wide range of views in the comments.
I used an umbrella company many years ago. With a well run one you are buying payroll and administrative services, as a user ask the question “is this value for money?”.
The ability to pay employer contributions into an pension scheme is a definite plus.
Then there are the dodgy ones, competing on % take home by practices that are, at best, morally wrong. Legislation is too good for them, I am thinking more “something lingering with boiling oil”.
Glad I retired while running a one man company was still fun.