Tax campaigners urge government to take action to protect umbrella company workers
|The Low Incomes Tax Reform Group (LITRG) is adding its voice to growing calls for regulation of umbrella companies, starting with implementing previous proposals. So far proposed legislation has not been implemented, the Single Enforcement Body has not materialised and there is no current Director of Labour Market Enforcement. As a result, low-income workers continue to be at risk of working through non-compliant umbrella companies, warns LITRG.|
|Umbrella companies are businesses that take on agency workers and contractors as their own employees and as such, are required to deal with pay, tax and other employer obligations. They are used increasingly by low-income workers in the labour market, are often poorly understood and some, non-compliant, umbrella companies do not deal with their pay, tax and other employer obligations correctly. As well as supporting the broad call for regulation, LITRG is also sharing advice for workers on how to avoid common problems with using them (see below).
This call to action is after the publication of ‘Umbrella Companies – Call for Regulation’, a set of proposals for government action in this area, authored by employment status expert Rebecca Seeley Harris. The paper draws heavily on LITRG’s recent research report, ‘Labour Market Intermediaries’1 and urges a consultative approach to the design of regulation, to be pursued as a priority by government.
In the absence of any real progress from government in this area, calls for the regulation of umbrella companies are getting more urgent, with LITRG joining the voices of Matthew Taylor (author of the 2017 Taylor review of modern working practices), the Trade Union Congress (TUC) and the Association of Independent Professionals and the Self-Employed (IPSE), among others.2
Victoria Todd, Head of LITRG, said:
“Umbrella companies have been in the news a lot recently: there was the furore about an umbrella withholding holiday pay from workers,3 the loan charge APPG’s4 report linking umbrella companies to disguised remuneration and now concerns about the use of mini umbrella companies.5 Added to the negative practices by non-compliant umbrella companies highlighted in our own recent report, it is clear what the problems are in this area and that some action is needed.
“The Government previously set out a number of proposals which would, if implemented, be the first steps towards regulation of the sector.6 It is disappointing that none of these proposals have been taken forward. Government must make these actions a priority as well as giving serious consideration to what other steps might be needed.
“Umbrella companies are not always bad. They often perform useful and legitimate functions such as taking on the payroll and HR function of temporary work agencies who can’t or won’t do this in-house and providing an alternative route for freelance contractors who would otherwise have to work through a limited company. Many umbrella companies also adhere to certain standards and are concerned about the welfare of their workers. However, there is a sizeable minority of umbrella companies whose bad practice and non-compliance sadly tarnishes the rest of the industry.
“Regulation would drive away those umbrella companies that do not respect employment law, which will help protect lower paid agency workers who are vulnerable to exploitation. As they are likely to be the umbrella companies that are also non-compliant with tax law, there is a potential double benefit. There are also wider impacts. For example, non-payment of holiday pay is likely to be impacting considerably on gross wage levels, meaning lower receipts for the Exchequer.
“It was in 2017 that Matthew Taylor first mooted the idea of regulation but nearly four years later, there has been no progress, even though the Government accepted his recommendation. Indeed, it seems further away than ever, given the post of the Director of Labour Market Enforcement, who provides strategic direction for the enforcement bodies, is currently empty.
“The case for some regulation is now overwhelming and we urge the Government to move the issue out of the ‘too hard’ basket, implement previous proposals and consider what other steps are needed to address the many issues in the sector.”
Umbrella companies – tips from LITRG
LITRG is concerned about the lack of understanding about how umbrella companies work by the workers who use them and today it is offering people the following tips on how to find a safe, compliant umbrella company:7
There is no single definition of an umbrella company. Anyone can set up a company and label itself an umbrella company. Some umbrella companies are not compliant with employment and tax law and the sector is currently unregulated. It is vital that you are on guard.