The Trades Union Congress (TUC) has warned that government plans to address labour market abuses by umbrella companies are inadequate, amid signs that thousands of temporary workers may be being denied pay and basic rights.
As many as 600,000 temporary workers in the UK are thought to be employed by umbrella companies – used by recruitment agencies and companies to cut temporary payroll costs, which are usually charged as fees to the workers instead. The problem costs workers and the government as much as £4.5bn in fraud and misappropriation, according to estimates recognised by the government.
The government is working on new rules for the temporary labour market as evidence has mounted of unscrupulous umbrella companies taking advantage of workers.
In a response to a government consultation the TUC has said the business department’s Employment Agencies Standards Inspectorate (EASI), which may be tasked with enforcing the new regulations, has less than a fifth of the officers needed under UN standards.
Under current proposals, independent contractors who are not classed as “agency workers” could still fall outside the scope of regulation, despite being forced to use umbrellas, the TUC said.
The use of umbrella companies has increased significantly, including in the NHS and the education system, since the government changed tax rules for contractors. The Guardian last year found evidence of possible umbrella company tax dodging in the test-and-trace programme.
The union body, which repeated its call for a ban on umbrellas, cited abuses such as a locum physiotherapist in London who did not receive pay for five weeks of work from his umbrella company employer. The worker had been forced by the NHS trust to sign up to the umbrella, but neither the trust, the recruitment agency or the umbrella will take responsibility for the loss of wages, the TUC said.
Other workers have said how they were denied holiday pay by umbrella companies that did not inform them of their rights until it was too late.
Frances O’Grady, the TUC’s general secretary, said: “It has long been clear that our lack of regulation lets dodgy umbrella companies off the hook – allowing them to act with impunity and treat workers appallingly.
“But the government’s proposals fall far short of what’s needed. Hundreds of thousands of workers using umbrella arrangements might miss out on protection because they aren’t agency workers. And there aren’t enough inspectors to make sure companies stick to the rules.
“Tinkering around the edges won’t cut it. It’s time for a ban on umbrella companies.”
Rebecca Seeley Harris, a tax expert and former senior adviser to the Treasury, said umbrella companies “need to be regulated and sooner rather than later” but said she did not believe they should be banned, to allow businesses flexibility.
“In an ideal world, maybe umbrella companies would not be needed but, such is the complexity of hiring someone off-payroll, umbrella companies have found a place in the labour supply chain,” Seeley Harris said.
“Unfortunately, the government has failed to take notice of this market despite being warned of the need to regulate and now bad practices have been allowed to develop.”
