Industry calls on HMRC to better enforce existing legislation to weed out non-compliant firms.

Frances O’Grady, general secretary of the Trades Union Congress (TUC), has called for a ban on the use of umbrella companies, saying: “Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries … It’s time for ministers to ban umbrella companies, without delay.”

The TUC, which represents 5.5 million workers, estimates that half of all agency workers are employed through umbrella companies based on research it commissioned from the Low Incomes Tax Reform Group. It predicts a rise in the use of umbrellas to source agency workers fill post-pandemic talent shortages.

Clarke Bowles, Director of Strategic Sales at Parasol Group, commented: “After what I thought was a well written and balanced report from The Low Incomes Tax Reform Group (LITRG), it’s disappointing to see TUC still hold a view which in my opinion does nobody any good. Compliant and ethical providers, those who supported throughout furlough, those who ensure holiday pay is always paid are tarnished with the same brush as tax avoidance promoters and even fraudulent models.

“There is a place in the supply chain for compliant and ethical providers and many contractors choose to use an umbrella company for the benefits they receive, but I believe it is about contractor choice, regulation and enforcement.”

This view was echoed by Crawford Temple, CEO of Professional Passport, who said: “It is surprising to hear this call from Frances O’Grady as the Loan Charge APPG report commissioned by the TUC did not call for a ban. Whilst there is a lot of regulation already in place to address malpractice in the industry, a blanket ban is not the way forward and the call by the TUC serves to demonstrates a lack of understanding on how compliant umbrellas work to support workers.

“The Government needs to address the underlying issues and challenges that our industry faces as a matter of urgency, namely non-compliance, transparency and enforcement. Non-compliance is fuelled by the complexity of legislation currently in place. The lack of visible enforcement, the lengthy delays in taking any action, and targeting the workers for recovery all serve the interests of those seeking to circumvent, or disregard, the rules. HMRC holds all the data it needs to stamp out bad practice and it is simply not taking the proactive approach. This is where the real problem lies.”

Dave Chaplin, CEO of contracting authority ContractorCalculator adds: “Not surprisingly, the fraudsters aren’t scared by unenforced regulation – which is why some are happy to call for more of it – knowing that they can just carry on with limited (or no) oversight. Payroll transparency and monthly independent party auditing is where the market needs to head, and some are already leading the way on that.”

Phil Pluck, CEO of the FCSA, described the TUC’s call for a ban as ‘a knee jerk reaction to a sector that has come about through necessity’ adding that it is misguided in suggesting recruitment agencies be the provider of contingent labour.

“A contractor may move from contract to contract on almost a weekly basis with day rates for their work varying on each contract,” he explained. “Recruitment firms realised long ago that to have for example one thousand contractors on their books moving through thousands of variable rate contracts whilst actually being their employer was logistically impossible. The same contractors will then typically move from one umbrella to another around three times per annum.

“To employ a contingent worker through large numbers of contracts whilst also employing them whilst they are not actually working on a contract requires detailed knowledge in taxation, accountancy and employment law as well as a detailed understanding of highly complex software management systems. Recruitment companies are simply not equipped to properly manage and employ such a varying workforce. Hence the existence of umbrella firms. To simply suggest that umbrella firms be banned is not workable and ultimately will disadvantage the freelance worker.”