Policy to regulate umbrella market submitted to the Treasury

Together with Rebecca Seeley Harris, we have submitted a draft policy to the government, outlining the steps needed to regulate the umbrella company industry and protect workers’ rights.

We’ve talked a lot about umbrellas over the past year on OffPayroll.org.uk and via our Proudly Off Payroll podcast. We’ve listened to stories of unfair treatment, the skimming and little scams that contractors have faced from the umbrellas they have been forced into using. We, along with several other voices, have complained loudly about unfair umbrellas, but this isn’t enough.

Action is urgently needed to regulate the sector, which is why, together with Rebecca Seeley Harris, we have offered a solution by drafting a policy for the government.

Policy: Umbrella companies – Call for Regulation

Employment and tax status expert, Rebecca Seeley Harris, and inniAccounts’ CEO and founder of OffPayroll.org.uk, James Poyser, have submitted a draft policy to the Treasury outlining the steps needed to regulate the umbrella company industry for the much-needed protection of workers’ rights.

The draft policy, entitled ‘Umbrella companies – Call for Regulation’, has been submitted to Jesse Norman, the Financial Secretary to the Treasury, and Paul Scully, the Parliamentary Under Secretary of State in the Department for Business, Energy and Industrial Strategy and Minister for Labour Markets.

The policy provides clear and concise recommendations on how to regulate the umbrella market, in the absence of any progress on proposed legislation to date.

We call upon the government to take urgent action to regulate the sector and to intervene to stop the scandals embroiling the umbrella sector. This includes:

  • the practice of withholding holiday pay
  • incorrect payments of employers’ national insurance contributions, and 
  • abuse of the employment allowance tax relief.

These all amount to £billions in misappropriation to HMRC and workers. The use of tax avoidance schemes, including the use of ‘mini umbrella companies’, are estimated to cost workers and HMRC around £1billion annually.

Rebecca Seeley Harris, says it will not only ensure enforcement, uphold workers’ rights and prevent tax evasion but also protect the effort and reputation of umbrella companies that do abide by the law: “I drafted the policy to help the government focus on the task in hand and work with industry experts to ensure any legislation provides robust regulation and protection for workers. It is paramount that the regulation of this industry is expedited because of the rise in the use of umbrella companies as a result of both the Coronavirus pandemic and the off-payroll working rules forcing people through non-compliant umbrellas.

“The abuses in the labour market supply chain, as a whole, need attention and it may be that the government can look at the bigger picture, including legislation such as IR35 and the off-payroll reforms, because it drives immoral behaviour. The issues concerning employment status in the UK are the driving force behind the use of umbrella companies – it is simply irresponsible to let it continue unregulated. I also believe it’s about time the government responded to the Employment Status consultation that closed in 2018.”

James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, says the government can no longer sit on its hands: “Ahead of new off-payroll reforms coming into force in April, 71% of employees deemed ‘inside IR35’ were moved into umbrellas. The breadth and scale of the stories of malpractice, scams and skimming are distressing and deplorable. It’s clear that ‘accreditation’ and self-regulation of this market is simply not working, and instead has created cartel-like behaviours and unethical practices. It is a fair and reasonable statement to say that umbrella workers are a revenue-generating commodity for the supply chain to exploit.

“We have witnessed payslips that don’t reconcile, deductions taken from workers but not paid to HMRC, holiday pay being unfairly pocketed, workers forced to use a single umbrella company with artificially inflated fees and agree to ‘opt-out’ of worker protections. These practices are prolific, including amongst the most well-known ‘accredited’ umbrella companies. Any layperson who lifted the lid on the industry would quickly conclude that this market needs urgent intervention and regulation.”

Policy proposals

The policy drafted by Rebecca Seeley Harris, urges the government to act as a matter of priority on unresolved issues and puts forward proposals to help expedite the decision-making and enshrinement in law, as follows:

  • Appoint a Director of Labour Market Enforcement as a matter of urgency to provide strategic direction.
  • Identify whether to form a Single Enforcement Body (SEB) or to expand the remit of the Employment Agency Standards Inspectorate (EAS) to oversee the regulation.
  • Consult on whether the existing legislation (Conduct of Employment Agencies and Employment Businesses Regulations 2003) is the appropriate legislation to regulate umbrella companies; if not 
  • clearly establish what type of regulation is needed in the labour market to ensure compliance of the umbrella companies and other intermediaries,
  • consider whether the umbrella companies and other intermediaries should be license,
  • consider whether there should be not for profit umbrella co-operatives, modelling international examples,
  • ensure that any legislation also protects the rights of the worker; and crucially 
  • that there is an enforcement body that can assist in recovering holiday pay on behalf of the worker (as HMRC already do for National Minimum Wage).

The overall approach of the proposed policy is backed by Matthew Taylor, CEO of the RSA and the architect of the Taylor Review into Modern Working Practices. Matthew originally called for the regulation of the umbrella company sector in his Review of Modern Working Practices and is a strong advocate for change in accordance with the government’s Good Work Plan.

The policy has also been shared with the Office of the Director of Labour Market Enforcement and the Loan Charge APPG. A meeting has been requested with the Financial Secretary to the Treasury to discuss the proposal and the move towards regulation and the protection of workers’ rights.

Join the #fairumbrella conversation on the OffPayroll.org.uk LinkedIn page.