Used to employ temporary workers, umbrella companies are an intermediary between recruitment agencies and employers, taking on the responsibility for wages, tax and holiday pay.
However, concerns have been raised about umbrella companies abusing workers’ rights and committing fraud.
Off-payroll in the UK:
TUC calls for umbrella company ban
Are we turning back the clock on workers' rights?
Key steps for HR as dust settles post off-payroll
Speaking to HR magazine Trades Union Congress (TUC) employment rights officer Matt Creagh explained: "Too many workers are being denied the wages they were promised and basic legal rights like holiday pay because they work for umbrella companies.
“It has also been widely reported that some umbrella companies promote and coerce their employees to use tax evasion schemes, leaving workers potentially facing huge future tax bills.”
In the same poll of off-payroll contractors, conducted by IR35 Shield, just 6% of respondents said they would be happy to use an umbrella company despite being asked to work with one.
A further 78% said they would be unable to detect if an umbrella company was being used as a tax avoidance scheme.
Due to the questionable use of umbrella companies, this summer the TUC launched campaign for them to be banned outright.
Creagh added: “Employers shouldn’t be able to wash their hands of their responsibilities by farming out their duties to a long line of intermediaries.
"It’s time for ministers to ban umbrella companies without delay.”
Earlier this week, the government launched a consultation on how the umbrella company market works adding to evidence it has already started gathering on tax non-compliance and worker protection.
Though encouraged by the move, Crawford Temple, CEO at payment intermediary compliance assessor Professional Passport, told HR magazine: “It is important to stress that whilst policymakers are working out a more informed approach to the workings of the umbrella sector, I would like to remind them that disguised remuneration schemes and tax avoidance schemes are continuing to thrive whilst they seek to penalise the victims rather than the perpetrators.
“This call for evidence should not delay the essential need for more visible action and enforcement right now.”
Half (50%) of off-payroll contractors surveyed believed firms would suffer some long-term damage since the change of IR35 legislation and the pandemic.
Over half (65%) of firms in the survey also said they lost at least half of their contractors in 2020.
Dave Chaplin, CEO at IR35 Shield told HR magazine: “We need to close the door on disguised renumeration schemes, but more importantly on payroll skimming and scamming for other non-compliant ones.
“There are some very simple, quick and efficient ways to do this, but I expect to see considerable pushback from vested interests who have £millions of reasons for maintaining the status quo.”
IR35 Shield's IR35 Impact Survey is based on the views of 3,750 contractors in the UK.
