[UK] Call for tougher umbrella company regulation as billions in hidden costs revealed

Union and employment experts have called on the UK government to toughen regulation of the temporary labour market, following concerns that abuses by “umbrella” companies could be costing workers and the exchequer as much as £4.5 billion a year, The Guardian reports.

As many as 600,000 of the UK’s temporary workers are thought to be employed by umbrella companies, often used by recruitment agencies and companies to cut temporary payroll costs. 

In some cases, the practice can provide useful services for contractors, however, industry experts and the TUC are concerned that umbrella companies are increasingly being used to reduce workers’ rights and misappropriate billions of pounds in unpaid wages and tax fraud.

“Umbrellas need specific legislation,” Rebecca Seeley Harris - a tax expert and former Treasury adviser - said, “It’s rife with problems and I can’t believe the government has sat on its hands and not pursued it.”

Umbrella companies have been under additional scrutiny as more people are forced to use them in the wake of new, stricter tax rules for contractors. There has also been more recent scrutiny of “mini-umbrella companies”, reportedly used to avoid tax potentially worth hundreds of millions of pounds a year. 

Last week a Guardian investigation revealed that mini-umbrella schemes appeared to be present in several suppliers to the UK government’s COVID-19 test-and-trace system.

In 2018 the UK’s former director of labour market enforcement - an official tasked with coordinating the efforts of the various agencies overseeing workers’ rights - cited estimates of a £4.5 billion cost, including £1 billion from unpaid wages, and £1 billion from frauds including mini-umbrella companies.

The other crucial issue is holiday pay, which is a legal requirement. Umbrella companies have been estimated to withhold holiday pay worth £2.5 billion a year. Holiday pay is forfeited if workers do not actively claim it before the end of a tax year so unscrupulous umbrellas can keep it instead of rightly passing it on to workers. There is currently no organisation in charge of recovering unpaid holiday pay for workers.

Frances O’Grady - the TUC’s general secretary - said, “Everyone deserves decent work. But a lack of regulation is allowing dodgy umbrella companies to operate with impunity. The victims are often low-paid key workers, denied their basic rights like holiday pay and minimum wage.

“Ministers must consider whether umbrella companies should be allowed at all. Employers shouldn’t be able to farm out their duties to a long line of intermediaries – washing their hands of any responsibility.”

The TUC has also raised concerns about the declining enforcement of labour market laws. Inspections of employers by HMRC - responsible for policing minimum wage laws - and the Employment Agency Standards Inspectorate (EASI) fell by 20 per cent and 50 per cent, respectively, during 2020 compared with 2019.

The TUC said that basic workers’ rights are “illusory” if not backed up with the proper enforcement and that further resources are needed. For example, 40,000 employment agencies are covered by just 19 EASI inspectors.

A UK government spokesperson said: “Protecting and enhancing workers’ rights through robust regulation - including for those employed by umbrella companies - is a priority for this government.

“We have already introduced requirements to improve the information provided to new agency workers about their contractual terms and pay rates, and have committed to establishing a single enforcement body to further protect vulnerable workers.”

Source: The Guardian

(Links via original reporting)

Union and employment experts have called on the UK government to toughen regulation of the temporary labour market, following concerns that abuses by “umbrella” companies could be costing workers and the exchequer as much as £4.5 billion a year, The Guardian reports.

As many as 600,000 of the UK’s temporary workers are thought to be employed by umbrella companies, often used by recruitment agencies and companies to cut temporary payroll costs. 

In some cases, the practice can provide useful services for contractors, however, industry experts and the TUC are concerned that umbrella companies are increasingly being used to reduce workers’ rights and misappropriate billions of pounds in unpaid wages and tax fraud.

“Umbrellas need specific legislation,” Rebecca Seeley Harris - a tax expert and former Treasury adviser - said, “It’s rife with problems and I can’t believe the government has sat on its hands and not pursued it.”

Umbrella companies have been under additional scrutiny as more people are forced to use them in the wake of new, stricter tax rules for contractors. There has also been more recent scrutiny of “mini-umbrella companies”, reportedly used to avoid tax potentially worth hundreds of millions of pounds a year. 

Last week a Guardian investigation revealed that mini-umbrella schemes appeared to be present in several suppliers to the UK government’s COVID-19 test-and-trace system.

In 2018 the UK’s former director of labour market enforcement - an official tasked with coordinating the efforts of the various agencies overseeing workers’ rights - cited estimates of a £4.5 billion cost, including £1 billion from unpaid wages, and £1 billion from frauds including mini-umbrella companies.

The other crucial issue is holiday pay, which is a legal requirement. Umbrella companies have been estimated to withhold holiday pay worth £2.5 billion a year. Holiday pay is forfeited if workers do not actively claim it before the end of a tax year so unscrupulous umbrellas can keep it instead of rightly passing it on to workers. There is currently no organisation in charge of recovering unpaid holiday pay for workers.

Frances O’Grady - the TUC’s general secretary - said, “Everyone deserves decent work. But a lack of regulation is allowing dodgy umbrella companies to operate with impunity. The victims are often low-paid key workers, denied their basic rights like holiday pay and minimum wage.

“Ministers must consider whether umbrella companies should be allowed at all. Employers shouldn’t be able to farm out their duties to a long line of intermediaries – washing their hands of any responsibility.”

The TUC has also raised concerns about the declining enforcement of labour market laws. Inspections of employers by HMRC - responsible for policing minimum wage laws - and the Employment Agency Standards Inspectorate (EASI) fell by 20 per cent and 50 per cent, respectively, during 2020 compared with 2019.

The TUC said that basic workers’ rights are “illusory” if not backed up with the proper enforcement and that further resources are needed. For example, 40,000 employment agencies are covered by just 19 EASI inspectors.

A UK government spokesperson said: “Protecting and enhancing workers’ rights through robust regulation - including for those employed by umbrella companies - is a priority for this government.

“We have already introduced requirements to improve the information provided to new agency workers about their contractual terms and pay rates, and have committed to establishing a single enforcement body to further protect vulnerable workers.”

Source: The Guardian

(Links via original reporting)