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.
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.
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.”
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.”
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.”
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.”