Tax changes that came into force last month mean tens of thousands more of the UK’s gig economy workers are now employed by unregulated “umbrella companies”. These are companies that employ contractors who work on temporary contracts, and shelter large businesses from the expense of hiring permanent staff. The trouble is, they are accused of watering down workers’ rights.
The first umbrellas popped up in 2000, as so-called IR35 tax rules were introduced to discourage “off payroll working” — when workers provide services through their own limited company or another intermediary. Since April’s reforms, this extra layer in the supply chain protects employers who hire contractors from falling foul of “disguised employment” laws, by taxing workers at source. Yet while workers are taxed like employees, they are denied the benefits of a permanent contract — and if they want the work, have no choice but to sign up.
As more large employers insist temporary workers are employed via third-party structures, the UK’s estimated 600,000 umbrella workers are being denied billions of pounds’ worth of benefits, according to the Employment Status Forum, a tax reform group.
In a report this week, it estimated that over £2.5bn worth of holiday pay is being withheld from temporary workers every year; partly because they are unaware of their entitlement, but also because some umbrellas make it virtually impossible for them to book time off. Left unclaimed, this can legally be retained by the umbrella, depriving HM Revenue & Customs of an estimated £1bn of tax revenue had it appeared in workers’ pay packets.
Umbrella workers frequently complain their take-home pay is lower than expected, with opaque “employment costs” routinely deducted from payslips. Campaigners cite frequent mistakes with tax and national insurance calculations, claiming some unscrupulous umbrella companies deliberately “skim” wages with bogus charges. They also question the cosy relationships between recruitment agencies and umbrella companies, demanding greater transparency over commission payments and “preferred supplier” lists.
The temporary nature of this employment means umbrella workers — many of whom earn little more than the minimum wage — risk being dropped if they complain. But they have no independent body they can appeal to or ask for support; their only redress is an employment tribunal.
Trade unions question whether umbrellas should be closed altogether, claiming they exploit some of the UK’s most vulnerable workers. In its 2019 manifesto, the Conservative party pledged to create a single enforcement body for employment law to beef up oversight of the sector — a promise it should now deliver on. Campaigners say this will be meaningless without a mechanism for workers to blow the whistle without losing their livelihoods. They want regulators to “name and shame” employers who use umbrellas that withhold workers’ benefits, to encourage greater accountability within the supply chain.
Employment and tax laws more broadly are not working for millions of UK gig workers; the Pensions Regulator this week warned gig economy groups “to recognise that the people who work for them are workers and should be eligible for a pension”. Policymakers should urgently review the unintended consequences of the IR35 changes. Unscrupulous umbrella companies are casting a cloud over the flexible labour market. More effective oversight is crucial to avoid flexibility merging into exploitation.
Source: Economy - ft.com
