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Are contractors losing out to umbrella companies?

Are contractors losing out to umbrella companies?

Unite believes that workers employed via umbrella companies are being exploited and missing out on pay.

The UK trade union has accused the government of overlooking the issue and not doing enough to monitor how many are affected.

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According to Unite, there has been a huge surge in the number of workers forced to be employed via umbrella companies in recent years. In the majority of cases, it said, workers are initially engaged via an employment agency but are then told that they will be paid via an umbrella company.

The issue is most prevalent in the construction industry. However, it is also common in the NHS, local government, road haulage, education and warehouse/logistics.

Escalating costs

Unite added that under an umbrella company, the worker has to pay both the employer’s and employee’s national insurance contributions. This is in addition to income tax and amounts to 46% of a worker’s eligible earnings. The worker is also charged an additional sum – often up to £25 a week – by the umbrella company.

In 2015, the Treasury estimated that 260,000 workers were employed by umbrella companies. However, Unite has said that this figure is too conservative and that many more work via umbrella companies today.

“Thousands of workers are being exploited by umbrella companies but the government clearly has no interest in alleviating their misery as they are not even monitoring how many workers are being paid in this way,” Unite assistant general secretary Gail Cartmail said. “Workers are being fleeced and deductions are so great. Saving for old age will often be unaffordable as workers can’t make ends meet day to day. This is simply storing up further problems for the future.”

Another side to the story

The Freelancer & Contractor Services Association (FCSA) has a different view, however.

FCSA chief executive Julia Kermode has come forward and said that workers can gain many benefits by choosing to work through compliant umbrella companies.

“Umbrella employers do not exist to exploit workers but to provide a valued service enabling workers to be employed. This while also having the flexibility of working on a number of short-term assignments for various end-hirers,” she explained. “A compliant umbrella employer provides an invaluable service to the temporary labour market. They employ contractors, ensuring that they are entitled to all 84 statutory benefits and rights of employment, whilst also giving them the freedom to undertake short-term assignments for a variety of end-clients. In short, it is the best of both worlds, all the flexibility of contracting plus all the benefits of employment.”

She added that, in most cases, employees also don’t miss out on pay.

Money taken from assignment rates not wages

“To clear up the confusion of pay, compliant umbrellas do not deduct employers NICs from their employees’ wages, neither do they deduct their margin from their employees’ wages nor any employers’ pensions contributions,” Kermode added. “All of these are overhead costs which are taken out of the assignment rates. This is not the same as the employees’ wages. Confusion can sometimes occur when there has not been enough transparency regarding the difference between the assignment rate and the umbrella employees’ gross pay rate. This can easily happen in fast-paced environments where workers are needed to hit the ground running at short-notice. However, there is no excuse. We will continue to strive to raise standards and promote compliance in our sector.”

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