TUC demand for government ban on umbrella companies raises eyebrows

by Jeremy

The Trades Union Congress (TUC) has come under fire for proposing that the government ban umbrella companies to ensure that contractors receive the correct pay and benefits for the work they do.

The union body wants the government to ban “without delay” employment agencies and end-user organizations from outsourcing their payroll responsibilities in the wake of reports about umbrella company contractors being denied holiday pay and having unnecessary deductions taken from their income.

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

“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.”

It claims the presence of umbrella companies adds a further unnecessary layer of opaqueness to the working relationship between contractors, employment agencies, and their end clients.

The TUC report said: “The use of umbrella companies fragments the employment relationship. Workers are not sure who to speak to resolve problems and can be passed from pillar to post when trying to sort out their issues.”

There is often a lack of pay transparency for umbrella company contractors, which can lead to individuals unwittingly becoming embroiled in tax avoidance schemes or having unexplained deductions taken from their pay. “Payslips are often indecipherable,” said the TUC report.

The TUC estimates that 600,000 contractors across the UK are working through umbrella companies, and – in the wake of the IR35 tax avoidance reforms coming into force in the private sector in April 2021 – that number continues to grow.

The reason is that many medium-to-large private sector firms have introduced policies that stipulate that they will only hire contractors who provide their services through umbrella companies because this allows them to sidestep the reforms.

This is because the contractor is classified as an employee of the umbrella company, which absolves the private sector hiring organization from having to assess the tax status of that individual, which is a significant component of the IR35 reforms.

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