The government is being called upon to put its money where its mouth is by using the forthcoming autumn Spending Review to allocate budget to fund the creation of a single enforcement body (SEB) to protect umbrella workers.
The Department for Business, Energy and Industrial Strategy (BEIS) set out plans in June 2021 to create the SEB to protect workers and umbrella contractors from rogue employers and workplace malpractice.
The proposal has been repeatedly mooted by BEIS as one of a series of measures it plans to introduce as part of a clampdown on non-compliant payroll processing umbrella companies.
These unregulated entities are frequently used by recruitment agencies and end-clients to run the payroll procedures for any contractors and freelance workers they engage.
The number of contractors who provide services to end-clients through umbrella companies is thought to have soared in recent years, following the introduction of changes to the IR35 tax-avoidance rules in both the public and private sector.
Under the reworked rules, the end-clients are now responsible for determining how the freelance workers they engage should be taxed, whereas previously this was the responsibility of the contractors themselves.
In response to these changes, Computer Weekly has unearthed numerous examples of private and public sector organisations that have introduced hiring bans that mean only contractors that work via umbrella companies can be engaged by their organisations.
This is because the contractor is considered the umbrella’s employee in this setup, which means the end-client is no longer responsible for determining how the contractor should be taxed.
The presence of umbrella companies within the extended end-client-to-contractor supply chain has proved a contentious topic following reports of some firms making unlawful deductions from contractor pay packets and withholding holiday pay.
As a result, the government has found itself under growing pressure to deliver on the recommendation made in 2017 by the former interim director of labour market enforcement, Matthew Taylor, to introduce statutory regulation of umbrella companies.
The proposal by BEIS earlier this year to create a SEB is seen as a positive step in that direction after years of delay, but now the Department faces a demand to ensure the initiative receives the financial backing of the government through the forthcoming Spending Review.
The demand comes in the form of an open letter, penned by Rebecca Seeley Harris, chair of the employment status forum, and James Poyser, CEO of contractor-focused accountancy firm inniAccounts.
The letter is addressed to MP Paul Scully, parliamentary under-secretary of state for BEIS, and demands that “sufficient funding is allocated to the creation and management of the single enforcement body” during the Spending Review.
Government Spending Reviews take place every three years and are used to set out the expenditure limits and resources that will be assigned to each ministerial department during the coming 36 months. The next one is due to coincide with the Autumn Budget on Wednesday 27 October, and the deadline for submissions to it passed on 30 September 2021.
In their letter, dated 30 September, Seeley Harris and Poyser state that if insufficient funding is allocated to the SEB, then BEIS will need to make up this shortfall by urgently increasing the funding available to protect umbrella workers by other means – namely, by ramping up the resources made available to the Employment Agencies Standards Inspectorate.
This entity is tasked with protecting the rights of employment agency workers, and expanding its remit to include contractors that provide services through umbrella companies has, in the past, been mooted as a way to provide extra protections to these individuals.
The letter also makes reference to a series of recent news stories that highlight the risks posed to contractors by the continued lack of regulation for umbrella companies, including details of the recent cyber attack on the Giant Group umbrella company that saw thousands of umbrella contractors suffer delayed wage payments last week.
“We are sure you will agree that these are unprecedented times, and it calls for unprecedented measures,” said the letter. “IR35 has created the growth of umbrellas, leading to an unfair and unethical market. What’s more, it is astounding that companies handling millions of pounds of other people’s pay remain unregulated. It is an unsustainable situation for workers, employers and taxpayers.”
Seeley Harris and Poyser also make reference in the letter to the draft policy paper they jointly penned in May 2021 that set out a roadmap for the government to follow to expedite the process of rolling out statutory regulation for the umbrella market.
“We remain steadfast to our recommendations that regulation of the market is an essential step to prevent further abuse of workers’ rights and tax evasion,” the letter continued. “However, in light of this week’s events [concerning Giant Group], we have updated the policy to include fraud and security – a copy of which has been submitted to the Spending Review.
“We trust you will be representing this case with the Spending Review. It’s time to act and stamp out mini-umbrellas, unethical business practices and tax evasion by umbrellas, and create a system that positions the UK as a leader in global labour markets.”
