After a challenging year for umbrella workers, what might 2021 hold for individuals using these services?

As has been the case for most sectors, the Coronavirus pandemic had a huge impact on umbrella workers, with the industry facing a number of considerable challenges in 2020. In this article, I reflect on what was an unprecedented year, before looking ahead to what must be done in the next 12 months to ensure a safe, compliant environment for the hundreds of thousands of individuals who choose to work this way.  

Let’s start at the beginning – the roll out of the Coronavirus Job Retention Scheme (CJRS) back in March 2020. You might recall, upon its arrival, there was a frenzied rush to the government website, as employers and employees from every sector checked their eligibility. 

Despite lots of media attention and headline-grabbing announcements, making sense of the government’s guidance has not always been easy. Frequent updates have caused concern for freelancers, contractors and those already working through umbrella companies in the UK.

Following the launch of the CJRS scheme, its details have been edited more than 50 times – which has only added to the confusion. Version 2 of the scheme, applicable from 1st July 2020, included major changes such as the introduction of flexible furloughing and increasing the required contributions from employers. Most recently, the Chancellor announced that it would be extended until the end of April 2021.

It has been reported that more than nine million people have benefitted from CJRS so far, but for umbrella companies, getting clarity on the eligibility of those using these services was anything but straightforward during the early months of the COVID-19 pandemic.

Thankfully, a resolution was found in May last year, when the government – under pressure from Parasol and others – finally confirmed its position and effectively gave the green light for furlough pay to be given to the vast majority of workers, including umbrella employees. 

But the journey to that point was difficult for everyone involved and umbrella workers were forced to wait a lot longer than they should have done for an answer. 

Applying the CJRS rules for umbrella workers – what were the complications?

During the early stages of the first UK-wide lockdown, the government had not made it clear that contingent workers employed by umbrella companies could access the scheme.

It’s important to say that I don’t believe it was the intention of the government to treat umbrella workers differently to other employees, but it was obvious the scheme hadn’t fully considered the impact on the UK’s flexible workforce.

The complexities of the situation were rooted in a couple of key areas around what could be included in the furlough pay calculation for an umbrella employee. 

Given umbrella employees typically receive their earnings as commission or a bonus as well as basic pay, clarity was needed from HMRC on whether furlough pay would cover average earnings inclusive of commission or basic pay only. 

The other key problem focused on the accrual of holiday pay during furlough and whether that could be included in any calculation. Many in the industry, including us at Parasol, were left in an impossible position. Without clarification from HMRC, any attempt to calculate furlough pay could have also run the risk of being non-compliant with the scheme. As one of the industry’s biggest employers, the impact of getting this wrong would have been very significant. 

Thankfully, the government elaborated, and Parasol, along with other compliant umbrella companies were then able to swiftly make retrospective furlough payments to all eligible employees.

What does 2021 hold for umbrella workers?

Freelancers and contractors are the backbone of the UK economy and that sentiment has been echoed by the government many times already.

Although the CJRS has been extended, redundancies continue to be made across many sectors and choosing to work as a contractor is now a career that many more people are considering. As an industry, we know the flexible workforce will have an important role to play in the UK’s economic recovery in the coming year. 

But working through an umbrella company still has many benefits – from being helpful for employment record purposes when applying for mortgages, to accruing employment rights like statutory sick pay, maternity or paternity pay.

There’s also the big issue of off-payroll reforms for the private sector (IR35) in 2021, with the government adamant that the changes will come in from 6th April. We’ve already seen plenty of contractors make the switch to umbrella working for assignments that they believe are inside IR35, and we’ve recently launched Parasol Select – a Professional Employer Organisation (PEO) model – as another option for contractors who are likely to fall inside IR35 when the off-payroll reforms are implemented.

This all comes against a backdrop of some large businesses announcing that they will issue blanket bans on working with limited company contractors, making umbrella workers their only real option for accessing a flexible workforce.

Companies blanketing contractors have taken a very short-sighted approach to IR35 reform, in my view. The reforms are manageable with the correct preparations and proper IR35 status assessments. And whilst there is a financial cost for businesses to bear, the consequences of failing to carry out accurate and compliant IR35 assessments could mean losing access to valuable talent which, as many of you will know, is likely to be far more costly in the long term. 

The need for better regulation of umbrella companies

As we head into 2021, the lack of regulation in the umbrella industry remains a big concern and a lack of understanding from the government no doubt contributed to the difficulties with regards to the application of the CJRS last year. This is something we simply can’t afford to happen again. 

An even more compelling case for regulation of the umbrella industry is the need to clamp down on tax avoidance schemes that target contractors often under the guise of being a compliant umbrella company. This continues to negatively affect the reputation of our industry and have a devastating impact on the contractors who are caught up in them. 

HMRC regularly issue ‘Spotlights’, which warn taxpayers and tax advisors of tax avoidance schemes that have caught their attention. Whilst it’s good news that HMRC is using this system to draw attention to this, the only way to stop these promoters is through proper regulation. This year, we will continue to work with our industry partners to educate contractors and the full supply chain. 

In my opinion, there’s no doubt that more needs to be done to combat disguised remuneration schemes in 2021. In fairness to the government, regulation is on the way, with several recommendations made in The Good Work Plan to be implemented. However, the reality is that this may still be a couple of years down the line, with COVID-19 and other issues above it on the national agenda.

Until then, Parasol will carry on providing our support, working with the likes of IPSE and the FCSA to promote the use of compliant umbrella companies while championing change for this vital sector of the workforce.