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A recent survey by ContractorCalculator, the UK’s leading website for contractors and freelancers, has revealed shocking levels of non-compliance among some of the UK’s umbrella companies, as well as a system which is failing workers. Here we look at the results of it and the importance of compliance within the supply chain.

What does the survey say?

As well as some disturbing information about how some contractors are being treated (some find themselves being pushed into using an umbrella company against their will, some have had their choices of umbrella companies restricted, and some of them are unaware of their basic legal and employment rights), one of the main complaints was that umbrella companies are not regulated, and need to be so in order to protect people from unscrupulous and illegal behaviour. 

Dave Chaplin, the CEO and founder of ContractorCalculator, commented that the survey showed just how much the umbrella industry needed reform and accountability, adding that contractors needed more support from the Government to show them that they are cared for in the workplace. Mr Chaplin called for intervention and regulation to avoid a ‘race to the bottom’.

What could the Government do?

Here at Payme, we have been particularly vocal about the need for regulation of this industry – one that can and does benefit contractors, recruiters and end-clients when it is done in a compliant manner. We’ve blogged about the industry’s response to a Government Consultation, the pressing need for regulation within the industry, and the positives that would come from it. Our colleagues in other compliant umbrella companies and our accreditation body, the Freelancer and Contractor Services Association (FCSA), are all agreed on the principle of regulating the industry to:

• Continue to provide compliant and excellent services to our professional recruitment partners and our hard-working contractors

• Ensure that HMRC receives its fair share of Income Tax and National Insurance for the benefit of the population of the UK

• Drive non-compliant and fraudulent operators out of the market so that they cannot operate illegally to the detriment of everyone in the supply chain.

Mr Chaplin noted that the Government was warned about the effect that non-compliant umbrella companies would have on people’s livelihoods and businesses as early as 2017, before the IR35 reforms came into effect, but have failed to act on conclusive data, putting contractors at risk of exploitation and financial hardship. He added that there seems to be a lack of urgency from Ministers, and that the continual ‘do nothing’ approach may continue until after a General Election (this could be as late as January 2025). Mr Chaplin suggests several possible courses of action – the removal of the ability to opt out of the Conduct of Employment Regulations when contractors use an umbrella company, and making it compulsory for recruitment agencies to offer different options to contractors (not just umbrellas) in order to widen choice and raise both competition and quality. 

However the danger is that legislative reform may not come quickly enough. In the meantime, Mr Chaplin suggests enforcement activity in order to curb abuse, while compliant providers wait for reform to clean up the industry. 

What’s next?

We wholeheartedly agree that reform and accountability are essential to a thriving, productive and beneficial umbrella industry – one that provides an essential service to many thousands of contractors throughout the UK and helps them legally maximise their income while paying their fair share of contributions.

In the past we’ve demonstrated our commitment to compliance – we’re accredited members of the FCSA and are proud to provide a legal and valuable service to over 4,000 contractors every week. 

However, we and our umbrella company colleagues cannot fight the industry’s corner on our own. It’s essential that the UK Government implements a system of regulation, such as the Financial Conduct Authority provides for financial service firms and financial markets in this country to prevent non-compliance, illegal activity, and potential fraud, and in order to protect compliant companies, recruitment agencies and contractors alike from the activities of a determined and unscrupulous minority. 

If you’re concerned about any of the issues we’ve raised here, and would like more advice about partnering with a compliant umbrella company that will work in your best interests, you can call us on 0333 200 0845, email us at [email protected], or fill in the contact form here.