TUC Proposes Banning Umbrella Companies

The TUC has called for umbrella companies to be banned, and have issued a report which outlines their reasoning.  Their research has led the TUC to conclude that umbrellas serve no useful purpose for workers due to confusion regarding pay rates, no Key Information Documents, and employment protections being largely theoretical and/or not valued by contingent workers anyway.

Interestingly, the TUC’s report makes the case for some interim measures to raise standards in the sector, some of which seem quite sensible:

  • Amending agency conduct regulations to ensure that workers receive the advertised pay rate, which would require agencies to ensure they pay an uplifted rate to umbrellas to pay for employers NICs and other overheads.
  • Focus enforcement on promoters of tax schemes rather than workers – HMRC say they do take action against promoters prior to targeting workers, however there is no evidence of this in practice.
  • Establish joint and several liability within supply chains so that businesses which transfer their obligations to other parties can still be found liable for any breaches of the core employment rights.

These three points would certainly rectify the worker-related issues that the TUC identifies are a problem in relation to the umbrella sector.  In fairness the pay rate ‘problem’ is not driven by the umbrella sector, moreover it usually arises due to a lack of clarity in advertised rates for roles – either due to a lack of understanding on the part of recruitment firms, or occasionally it is a deliberate ploy to entice workers into believing they will earn more by choosing a particular agency.

Unfortunately, recent negative media exposés highlighting non-compliance within the umbrella industry have only exacerbated the TUC’s opinion, particularly due to the holiday pay scandal which sees unscrupulous umbrella firms pocketing their workers’ holiday pay despite their clients expressly paying for holiday within the workers’ charge rate.  Occasionally workers’ holiday pay is even split with recruitment firms, which is an additional twist to an already abhorrent practice.

The TUC is also rightly concerned about the level of financial incentives paid by umbrellas to agencies in exchange for being on their preferred supplier list, or bribes paid directly to agency employees.  The TUC correctly identifies that this practice is ultimately paid for by umbrella workers.

Their other significant concern is of course the tax avoidance schemes that purport to be umbrellas, however in reality workers who are unwittingly in such as scheme will usually find themselves with an extortionate tax bill due to HMRC not receiving the tax and NICs that were due.

The umbrella industry certainly seems to be broken and in urgent need of repair.  However an outright ban is not necessary, instead the TUC’s recommended actions should be implemented urgently as an alternative, not a stepping stone, to a ban.


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