Government To Regulate Umbrella Companies

Government To Regulate Umbrella Companies

The government plans to introduce legislation to regulate umbrella companies to protect workers and clamp down on tax avoidance.

The 40-page consultation document published yesterday aimed at providing an ‘up-to-date and well-informed view’ of how umbrellas operate with the aim to develop rules to regulate the market’s practices. It also aims to make sure the regulations protect workers and allow businesses to ‘operate flexibly’.

The government plans to bring umbrella companies into the scope of the framework that regulates employment agencies and employment businesses which are currently covered by the Employment Agency Standards Inspectorate (EAS).

The government will set out, through regulations, the minimum legislative requirements umbrella companies will be expected to comply with and once this is achieved, it will mean that inspectors will be able to investigate relevant complaints relating to umbrella companies and seek compliance from them, and where necessary ‘enforce compliance’.

The government also intends to address non-payment of wages and payroll skimming, where umbrella companies ‘skim’ money from payslips or inflate deductions to retain a small amount of the money to which the individual work-seeker is entitled for the hours worked for the end-user.

It will also address non-payment of holiday pay, as there is evidence that agency workers are not informed of holiday pay to which they are entitled, and the right amount of holiday pay is not paid out to agency workers on request.

The consultation also addresses ‘joint-employment’ contracts. This is where an umbrella company and an employment business both employ the worker, which are starting to become a feature of temporary worker supply chains.

The document states that this type of arrangement makes it more difficult for work seekers to know what the nature of their relationship is with their employment business and the umbrella company. The government wants to hear views about the reasons for their use, how widespread the practice is, and the impact on work-seekers.

The consultation also aims to ‘complement’ HMRC’s existing strategy for tackling the promotion of tax avoidance schemes by seeking views about the specific risks posed by umbrella company structures and how these risks might be mitigated.

The 38 questions published in the consultation calls for evidence from work-seekers about their experience of working through umbrella companies and from employment businesses and end clients about their use of umbrella companies.

The consultation details the role of umbrella companies in the labor market and the employment rights issues in the umbrella company market to provide transparency to workers and improve their understanding of what it means in real terms to be engaged through an umbrella company.

Crawford Temple, CEO of Professional Passport said: ‘This latest call by the government appears to be a genuine attempt to try to understand the challenges that the industry is facing. It is encouraging to hear that the Treasury, HMRC, and BEIS will be working together to address the issues and it is pleasing that they want to hear a broad range of evidence from a whole host of audiences.

‘However, it is important to stress that whilst policymakers are working out a more informed approach to the workings of the umbrella sector, I would like to remind them that disguised remuneration schemes and tax avoidance schemes are continuing to thrive whilst they seek to penalise the victims rather than the perpetrators. This call for evidence should not delay the essential need for more visible action and enforcement right now.’

The consultation closes for comment on 22 February 2022.

Ruby Flanagan, Reporter, Accountancy Daily