More than 7 in 10 (74%) contractors are not happy working via umbrella companies
Research by the self-employment trade body, IPSE, has revealed that despite an increase in the number of contractors working through an umbrella company, many believe there are no advantages to working this way.
Since IR35 reform came into force in the private sector in April 2021, there has been a significant rise in freelancers and contractors operating via umbrellas.
However, more than three in five (61%) of those working this way do not believe it offers any benefits, with the majority (69%) claiming that they had no alternative.
A further two-thirds (63%) of contractors stated that while they had some level of choice, they were given a limited range of umbrella companies to choose from. Five per cent, meanwhile, had no say and were allocated an umbrella company to work through.
Contractors’ day rates have fallen
The study also found that nearly three-quarters of contractors polled were dissatisfied about working via an umbrella, with half stating they were “very dissatisfied.”
When asked why, 80 per cent of respondents cited the fact that they now have to cover the liability for employer’s national insurance, and where applicable, the apprenticeship levy, through a reduction in their day rate.
In addition, over half (57%) believed their role should fall outside the scope of IR35, but the supply chain would not allow them to take the risk of working through their own limited company.
As a result, around 70 per cent reported having lost their independence.
Forced umbrella working threatens contractors
Andy Chamberlain, director of policy at IPSE, said: “The fundamental problem here is that people are being forced into pseudo-employment relationships they do not want.
“Since the IR35 changes came in a year ago, thousands who proudly consider themselves self-employed are being pushed into umbrella companies under disadvantageous conditions, often without even a choice over which umbrella company they use.
“[The] report was shared with the government following their recent call for evidence and we hope that they listen to us and the many umbrella company workers that have failed to see the benefits of working via an umbrella company.
“In particular, we hope that they put forward recommendations that stop freelancers from being forced into working for umbrella companies that limit their independence and give them no real benefits.”
Responding to IPSE’s study, Joanne Harris, head of technical, compliance and payroll at umbrella firm, Parasol, said: “There’s no doubt that the IR35 reform in 2021 has had a significant impact on how contractors work and the initial reaction from many businesses caused a huge shift to umbrella employment.”
Further education for end-hirers needed around IR35 rules
She added that according to Parasol’s Annual Contractor Survey, two-thirds of contractors reported being impacted in some way by IR35, with almost a half (46%) describing it as “very negative”.
“Many providers, including Parasol, have also created a solution that gives contractors the option of switching between umbrella employment and PSC working”, Harris explained.
“This dual approach means that contractors can work on contracts requiring employment through their umbrella company, while also taking on assignments that fall outside IR35 through their limited company.
“Now that some time has passed since the rules were introduced, we are starting to see more confidence and some settling down across many sectors. However, further education is needed for end hirers on IR35 to ensure contractors feel fairly treated and have confidence that their status is being accurately determined for every assignment.”