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Contractors argue umbrella companies need improved regulation, not outright ban

Trades Union Congress proposals miss the point, say campaigners

Contractors have described a UK union's call to ban umbrella companies as unworkable, leading to a greater void in the under-regulated market and making outsourced workers vulnerable.

The Trade Union Congress (TUC), a powerful association of British unions, said yesterday UK government should abolish umbrella companies to employ agency workers in light of what it sees as abuse of workers' rights and financial fraud.

Frances O’Grady, the TUC’s general secretary, said: "These scandalous workplace practices have no place in modern Britain. But our inadequate regulations let dodgy umbrella companies off the hook – allowing them to act with impunity."

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

While umbrella companies have come under fire from lawyers and employment campaigners who want to see better regulation of the market, they criticised the call for an outright ban, arguing it could lead to more bad practices and exploitation of workers.

Campaigners say umbrella companies have mushroomed as firms and temp agencies avoid directly hiring contractors judged to fall within the IR35 "off-payroll working" tax law. They take the untaxed income from an employer or agency and run the payroll, hand over the taxes and national insurance to the UK's tax collection agency, HMRC, and pass the net pay to the contractor. Among the alleged dubious practices used by some umbrella companies are attempts to impede holiday pay or entitlement and adding hidden fees to payslips.

But the Freelancer and Contractor Services Association (FCSA) said an outright ban could be harmful.

It said the TUC's move was a "knee-jerk reaction" and the suggestions that recruitment agencies should provide contingent labour was misguided.

The FCSA argued that contractors may move from contract to contract on almost a weekly basis with day rates for their work varying on each contract. While it was impractical for recruitment firms to manage so many variable-rate contracts, their specialism lay in finding people for jobs, it said.

"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."

Meanwhile, campaigners Rebecca Seeley Harris, chair of the Employment Status Forum, and James Poyser, CEO of inniAccounts, have argued for better regulation of the sector rather than an outright ban on umbrella companies.

Seeley Harris said: "The TUC report on the umbrella industry emphasises the need for the market to be properly reviewed and regulated. However, an immediate outright ban would be very complex to implement overnight because of the legislative timetable and the time companies would need to unravel arrangements."

She said she had discussed better regulation with the Department for Business, Energy and Industrial Strategy after submitting a draft policy entitled "Umbrella companies – Call for Regulation" 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.

Having failed to secure amendments to the Finance Bill in May, she argued it would take considerable time to introduce it because of the legislative formalities and timetable for the Spending Review.

The government has proposed a "Single Enforcement Body" to tackle modern slavery, enforce the minimum wage, and protect agency workers, including those employed by umbrella companies.

But campaigners argued there was a lack of detail in the proposals. Poyser said: "Overall, there still remains a long way to go in the battle for workers' rights, despite the announcement of a single enforcement body, which is why we will continue to press the government to work with us on the policy we have written and submitted." ®

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