Banning umbrella companies would make outsourced workers "more vulnerable" says the FCSA

In a recent report in the Guardian, the Trades Union Congress (TUC) has called upon the government to ban all umbrella companies. The Freelancer and Contractor Services Association (FCSA) has described the request as a “knee jerk reaction” and has jumped to the defence of compliance-driven umbrella companies. Keep reading to discover why the FCSA believe that banning umbrella companies would leave outsourced workers “more vulnerable”. 

The TUC claim dodgy umbrella companies are let “off the hook”

The Trades Union Congress (TUC) represents 5.5 million workers in the UK. In a recent report in the Guardian, the TUC has called for the government to ban all umbrella companies and claim “our inadequate regulations let dodgy umbrella companies off the hook – allowing them to act with impunity.”

Frances O’Grady, General Secretary at TUC, said:

“Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries.

Enough is enough. It’s time for ministers to ban umbrella companies, without delay.”

A recent report by the Low Incomes Tax Reforms Group identified over 500 umbrella companies in the UK. While many of these are compliant and have temporary workers best interests at heart, some have been acting unethically. For example, mini umbrella companies recently made the headlines again as greedy recruitment agencies were found to be referring candidates to non-compliant payroll providers against their knowledge.

The government isn’t sitting back and doing nothing

One thing is for sure; the government isn’t sitting back and doing nothing. Over the last 15 years, significant progress has been made in reducing the tax avoidance gap. From 2005 to 2006, it has fallen by £1.7 billion from £3.7 billion to £1.7 billion (2018 to 2019). In a recent article, we summarised a series of new measures that are being introduced to clamp down on promoters of tax avoidance schemes and dodgy umbrella companies.

The new measures include plans to tackle promoters who hide their assets to avoid penalties, going after offshore promoters, educating taxpayers regarding the risks of non-compliance, holding Directors responsible, and more.

Banning umbrella companies is not the answer

As a professional body dedicated to ensuring the supply chain of temporary workers is compliant and ethical, the FCSA shares the frustrations of the TUC. However, they clarify that banning umbrella companies is certainly not the solution, but more needs to be done to stop unscrupulous providers from preying on vulnerable temporary workers.

In the FCSA’s official response, they state:

“The FCSA share the frustrations that a recent press statement issued by the TUC highlighted. In it, the TUC suggest that the answer to rogue umbrella companies is to ban all umbrella companies. It is the view of the FCSA that this is a knee jerk reaction to a sector that has come about through necessity. To also suggest that recruitment agencies be the provider of contingent labour is also misguided.

A contractor may move from contract to contract on almost a weekly basis with day rates for their work varying on each contract. Recruitment firms realised long ago that to have for example one thousand contractors on their books moving through thousands of variable rate contracts whilst actually being their employer was logistically impossible. The same contractors will then typically move from one umbrella to another around three times per annum.

We must also remind ourselves that recruitment firms are experts in recruitment and the unique legislation that comes with that territory. To employ a contingent worker through large numbers of contracts whilst also employing them whilst they are not actually working on a contract requires detailed knowledge in taxation, accountancy and employment law as well as a detailed understanding of highly complex software management systems.

Recruitment companies are simply not equipped to properly manage and employ such a varying workforce. Hence the existence of umbrella firms. To simply suggest that umbrella firms be banned is not workable and ultimately will disadvantage the freelance worker.”

The FCSA also acknowledges the threat of non-compliant umbrella companies and tax avoidance schemes in the supply chain of temporary workers:

“The FCSA recognise the terrible actions of an increasingly growing criminal element who are preying on contractors. The whole reason the FCSA was set up was to provide end hirers, agencies and contractors with a lawful, compliant and ethical choice in the absence of proper protective regulation and efficient policing. That is why the FCSA has always called for regulation and tighter and more specific employment legislation to protect contractors and the supply chain.

There are compliant and ethical umbrella firms out there both within and outside of the FCSA. But there are a growing number of companies that are emerging with the sole intent of becoming rich at the expense of workers and HMRC. Why? Because for twenty years the Government has failed to put in place robust, protective legislation that protects workers and compliant umbrella companies. It is beginning to do so now, but only after years of pressure from the FCSA and others in the sector.”

The FCSA also comment on the impact that banning umbrella companies would have on temporary workers:

“The banning of umbrella companies would simply create an even greater compliant and ethical void that would ultimately make the outsourced worker even more vulnerable.”

The FCSA’s full response to the TUC’s demand to ban umbrella companies is available here.

“Compliant umbrella companies provide a valuable service for temporary workers”

Ciaran Woodcock, Head of Field Sales and Marketing at Churchill Knight, shared his thoughts on the Trades Union Congress’ request to ban umbrella companies.

“Rogue umbrella companies, tax avoidance schemes and disguised remuneration arrangements are damaging the industry, and they have been for years. However, it’s important to remember that compliant umbrella companies provide a valuable service for temporary workers, and they deserve more respect.

Banning all umbrella companies is certainly not the answer, and I agree with the FCSA’s response to the Trades Union Congress. The government is working tirelessly to identify and stop promoters of tax avoidance schemes, and recently unveiled measures will help. It’s vital that unethical schemes are stopped and compliant umbrella companies are appreciated.

Compliant umbrellas provide a much-needed service for temporary workers and the supply chain, and there are heaps of benefits of engaging with them. Not only do agencies and end-hirers reduce their administrative burden and employment-related costs, but temporary workers also get continuity of employment, employee rights, free insurance cover, and more.

I also believe that finding a compliant umbrella company is far easier than many stakeholders make out. Every responsible recruitment agency should be fully aware of the risks of referring their candidates to a non-compliant umbrella company. They should also have dependable Preferred Suppler Lists in place. It’s been encouraging to see more and more recruitment agencies pledge to refer exclusively to FCSA accredited umbrella companies. This is a great way of ensuring supply chain compliance.

The FCSA has done an excellent job self-regulating the umbrella marketplace. Like all FCSA members, Churchill Knight & Associates Ltd and Churchill Knight Umbrella have undergone thorough assessments, and audits – with no stone left unturned. The threats associated with non-compliant payroll providers will be significantly reduced if agencies exclusively refer to FCSA accredited companies.”

Churchill Knight Umbrella

Churchill Knight Umbrella is an FCSA accredited PAYE payroll provider for contractors and freelancers in the UK. Founded by experts with over 20 years of industry experience, we’re committed to both exceptional customer service and compliance with HMRC’s rules and regulations.

If you’re a contractor or freelancer looking for an umbrella company you can truly trust, you’ve come to the right place. To find out more about our industry-leading service, please call 01707 871622 or contact us here. Alternatively, please click here if you’re interested in a free umbrella company pay calculation.