The TUC has today (Thursday) called for umbrella companies to be banned, as it publishes a new report on their increasingly widespread use in the UK labour market.
The union body says the scandalous workplace practices associated with umbrella companies have “no place in modern Britain”.
An umbrella company is essentially a payroll company, used by recruitment agencies to operate a PAYE (pay-as-you-earn) system for the agency workers that they find work for. In many cases, the umbrella company will also employ the agency worker, with the agency workers becoming “employees” of the umbrella company.
A fragmented employment relationship
The TUC says that umbrella companies create multiple issues which mean it is difficult for workers to exercise their basic rights.
The union body says in particular, workers face misleading and unfair deductions from pay, adding that breaches of holiday leave and pay entitlement are widespread - with umbrella companies preventing workers from taking their holiday entitlements.
To make matters worse, the TUC says “the use of umbrella companies fragments the employment relationship”, leaving workers unsure of who to speak to resolve problems and often “passed from pillar to post” when trying to sort out their issues.
It has been widely reported that some umbrella companies promote and coerce their employees to use tax evasion schemes, leaving workers potentially facing huge future tax bills.
Increased use of umbrella companies
The union body is warning that the use of umbrella companies could spiral post-pandemic because of a combination of changes to tax rules (IR35) which have come in this financial year and the increase in agency work.
The IR35 or “off-payroll working rules” will potentially make employers liable for the tax and national insurance contributions of the contractors that they engage with. Government guidance states that the off-payroll working rules are unlikely to apply if you are employed by an umbrella company.
The TUC predicts that transferring contractors to umbrella companies will be seen by some companies as a convenient way to continue to shirk their tax and employment rights obligation.
New TUC research estimates that half of agency workers work for umbrella companies. Recruitment agencies have been used through the pandemic for key worker roles that needed to be mobilised quickly, like vaccinators and testing staff.
The TUC is concerned that post-pandemic the number of agency workers will increase – and therefore umbrella workers too – as companies scramble for new staff amid reopening and labour shortages in some sectors.
The TUC warns that there is no proper regulation of the sector, because the government has failed to task any of the enforcement bodies with regulating the umbrella sector, despite a recommendation from the Taylor Review into Modern Working Practices, that enforcement of umbrella companies should be stepped up.
The union body says this is a “gaping hole in enforcement” and lets down some of the lowest paid and most insecure workers.
In order to clamp down on the umbrella companies, the TUC is calling for:
TUC General Secretary Frances O’Grady said:
“Everyone deserves decent work. But too many low-paid workers are denied the wages they were promised and basic legal rights like holiday pay because they work for umbrella companies.
“Lots of them are the key workers we all applauded – like social care workers, teachers and coronavirus testing staff.
“These scandalous workplace practices have no place in modern Britain. But our inadequate regulations let dodgy umbrella companies off the hook – allowing them to act with impunity.
“Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries.
“Enough is enough. It’s time for ministers to ban umbrella companies, without delay.”
-The TUC report Umbrella companies: Why agencies and employers should be banned from using them is available here: https://www.tuc.org.uk/sites/default/files/2021-07/UmbrellaCompanies.pdf
-New TUC research, carried out by the Low Incomes Tax Reform Group, which estimated that 50 per cent of agency workers use umbrella companies, was based on input from sectoral experts.
- The Trades Union Congress (TUC) exists to make the working world a better place for everyone. We bring together the 5.5 million working people who make up our 48 member unions. We support unions to grow and thrive, and we stand up for everyone who works for a living.
TUC press office
020 7467 1248
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