Survey uncovers “contractor exploitation” across umbrella industry

Findings also reveal “alarming levels of non-compliance”, strengthening calls for regulation

A survey of over 600 flexible workers has found “systemic abuse, neglect and confusion” across the umbrella industry, with contractors at severe risk of “exploitation”.

The survey was conducted by Contractor Calculator. The findings were published last week (10th October) and the results “paint a bleak picture” of umbrella working, which has increased significantly since the introduction of IR35 reform.

Due to the off-payroll working rules, Contractor Calculator says many contractors have ended up working through umbrella companies “against their will” and must contend with “restricted choices and promotions of dubious schemes”.

Additionally, “most contractors are unaware of fundamental legal rights and compliance requirements regarding pay, pensions and regulations”. Many workers are also unsure if they are being paid correctly.

This is the result of a lack of regulatory oversight to date. Concerns over non-compliance remain, with tax avoidance schemes presenting a risk to flexible workers.

Despite repeated calls from experts across the industry, regulation has not yet been introduced.

”Vast majority” have negative experience of umbrella working 

The survey findings also highlight some essential statistics which illustrate the potential scale of non-compliance across the umbrella industry:

• 80% of contractors reported being forced into working through umbrella companies when engaged ‘inside’ IR35, with the growth in umbrella working likely a direct result of IR35 reform.
• Less than one in five (17%) umbrella workers are given a Status Determination Statement (SDS) when engaged ‘inside’ IR35, despite it being a legal requirement under the off-payroll rules.
• A quarter (24%) of workers were not auto-enrolled in a pension scheme (also a legal requirement).
• Almost half (46%) of workers don’t understand the different holiday pay structures used by umbrella companies (‘accrued’ or ‘rollover’); a fifth (19%) have experienced holiday pay issues and one in ten (11%) have had holiday pay unlawfully withheld. 

As well as uncovering key statistics, the research by Contractor Calculator also sought qualitative feedback from its respondents, with 214 submissions.

The “vast majority” of those reported having had “negative” experiences working through umbrella companies. Common themes included late payment or underpayment, inaccurate or missed tax deductions and missed pension contributions.

Government intervention needed “urgently”

Offering its opinion on the findings, Contractor Calculator said that, while the issues that some workers have faced are significant, the survey respondents represent “a small selection of the flexible workforce”.

While that may be true, the issue of non-compliance has been on the government’s radar for several years, predating the introduction of IR35 reform. With reform pushing many contractors into operating on the payroll, Contractor Calculator suggests that the government has “failed” to protect them by not introducing regulation. 

The government has recently published draft legislation which will mean tougher punishments for persistent promoters of tax avoidance. This is seen as a step in the right direction, but Contractor Calculator also calls for “short-term fixes” in the interim, as “enforcement activity should help curb abuse in the short term”.

Dave Chaplin, CEO of Contractor Calculator and IR35 Shield, said the findings “paint a picture of an industry rife with unacceptable non-compliance and contractor exploitation”.

“The umbrella mess has festered for years under a government that does not care about the flexible workforce”, Chaplin continued.

“Now is the time for reform and accountability. Workers deserve better than more broken promises and inaction from the government. The umbrella industry needs intervention and regulation urgently”, he concluded.