The UK government is calling for evidence from umbrella companies, employment businesses, individuals/workers, end-hirers and representatives groups in order to assist with forthcoming legislative changes that will affect umbrella companies and those who engage with them.

Why has the government launches this consultation?

Umbrella companies play an important role in the UK’s labour market but remain largely unregulated. The government believes that the labour market has become more complex and the umbrella company model itself, presents tax and regulatory challenges. It want to ensure that 'workers are protected from exploitation and that these new models of working do not lead to unfair outcomes for workers or the ability for some unscrupulous participants to abuse the system'

The government intends to focus with the following issues: 

1. Tax

The government believes that umbrella company model presents tax 'challenges' for HMRC.

HMRC and others have been collating evidence of the difference between the tax that should be paid and the tax that is actually received via umbrella company models. HMRC is aware of several examples of tax evasion (through the use of mini umbrella companies), as well as tax avoidance (through remuneration schemes facilitated by umbrella companies) and is keen to restrict these practices. 

It wants to minimise the tax gap by ensuring umbrella companies are paying the correct amount of tax and national insurance contributions, and workers are paying the correct amounts too. 

 2. Lack of regulation

Employment agencies and employment businesses are regulated, but umbrella companies are not (although they are subject to employment and tax rules). The government  intends to introduce legislation to bring umbrella companies into the scope of existing frameworks that regulate employment agencies and businesses and set out minimum legislative requirements for umbrella companies to comply with..

It also wants to set up a new single enforcement body and empower it to enforce regulatory compliance by umbrella companies.

3. Lack of transparency

The government intends to tackle issues relating to the lack of transparency over pay rates, fees and charges – particularly with regards to employers national insurance contributions and how they are presented on workers' pay-slips.

It is also concerned about the lack of clarity over who actually employs the employee which makes it difficult for them to enforce their rights. The government highlights, what it refers to as the 'growing practice' of joint-employment contracts whereby a worker is employed by the umbrella company and the employment business. It believes that these contracts can add an additional level of complexity for workers and make it hard for them to understand their relationship with each party.

4. Failure to comply with employment law

Umbrella company employees are entitled to the same employment rights as those engaged in more traditional forms of employment. But, the government is worried that many umbrella companies don't provide staff with basic employment rights such as holiday pay, minimum wages and statutory payments (such as sick pay and maternity pay) etc.

What is the deadline to respond?

Responses are due by 22nd February 2022.

Need more information?

Padma Tadi regularly advised employment agencies and umbrella companies on their legal responsibilities towards employees and workers. Please contact her if you'd like to know how we can help.