Ban on Umbrella Companies Would Escalate Worker Shortages and Pay Rates

Commenting on the government’s current call for evidence about the umbrella company market, David McCormack says UK businesses - recruitment companies in particular - are already reeling from the effects of Brexit and Covid, and so the consultation’s timing couldn’t be worse:

“The government’s call for evidence consultation has come at a time when Brexit and Covid have hit UK businesses hard. And yet, the TUC is calling for a total ban of umbrella companies, which would only succeed in putting even more strain on the current talent supply and shortage of workers.

“A ban would penalise legitimate transient workers. It would put immense pressure on pay rates for umbrella workers, who struggle to understand the implications and will seek their current rate of pay as a PAYE rate, meaning higher pay rates that many companies simply can’t afford at this time.

“For the recruitment sector, this would mean vastly increased processing costs – which their clients would understandably be unwilling and unlikely to pay to cover the higher labour costs.”

McCormack, who has first-hand experience of the various payroll models used today and was the head of his own umbrella business before setting up HIVE360 and becoming its CEO, says there is widespread misunderstanding of all umbrella companies, and people are tarnishing all umbrella businesses with the same brush:

“The proposed total ban on the use of umbrella companies, would be a sledgehammer to crack a nut,” he says, “Rarely does a blanket approach address the real issues, and an all-out ban on umbrella companies would be no exception. The TUC doesn’t appear to understand the roll of umbrella companies, or that there are multiple types. Rather than lobbying government for a total ban on their use, the TUC should be lobbying for statutory compliance and an independent statutory body that administers and polices clear rules and consequences, and which governs the industry in an effective, consistent and unbiased way.”

He adds: “Companies have to take part in the government’s call for evidence on umbrella companies, which closes on 22 February. They must understand that HMRC doesn’t appear to be effective in curbing the multitude of ‘mini’ umbrella companies, which is the side of the industry that predominantly gets the whole industry a bad name, and involves the use of multiple companies to access multiple amounts of employers NI allowances and effectively removes the obligation to pay one of employment’s core statutory taxes.

“IR35 has tried to address this – but failed.  The simple solution is to require the end user and the recruitment agency to answer one simple question (and this could apply to labour only supplies or all agency supplies only) that simply asks: ‘Are you accessing the employers NI allowance yourselves or is your NI bill over £100,000?’ If the answer is yes from either party, then the agency should be liable for any unpaid employers NI.”