Umbrella companies have exploded in popularity since changes to IR35 were introduced last April. But they have come under fierce scrutiny of late, with some being accused of riding roughshod over their employee responsibilities.
Umbrellas under the weather:
Examples of bad practice include misleading workers over their NI and tax (leaving many with unexpected tax bills), and allowing workers' holiday pay to lapse.
Speaking to HR magazine FCSA boss Chris Bryce said: “We’re going to augment a reporting hotline HMRC already has, by putting up a hotline on our own website where people can report these bad actors.
“We’ll then hand any information we get to HMRC for it to do its own investigations.”
Bryce confirmed that the FSCA does not have the resources to launch its own full-scale inquiries. What he did confirm would happen however, is that it would do a “first-glance" investigation.
HMRC already publishes a ‘warning list’ about errant umbrellas, but Bryce’s comments now give contractors another reporting route.
Bryce said: “What we don’t want is lots of reputable companies getting spurious complaints. So we’ll ask anyone contacting us to provide written evidence, and URLs so we can do a first check of whether their claims stack up.
“Bad companies are mostly well known anyway, but this will be a way of bringing to attention any that HMRC may not yet know about.”
Bryce, who joined the FCSA in January, revealed he expects the new hotline to be up and running by the beginning of April.
He said: “When I came here, I just thought this was something we could do to help workers. There are bad companies that people should simply avoid.”
One big question though is whether it will get used.
Julia Kermode, founder IWORK, which supports contractors, said: “It’s a reasonable idea, but my gut reaction is why contractors would report their concerns to the FCSA rather than HMRC direct?”
She added: “If it proves to be another avenue, then that’s fine. But it would be very positive for the industry if the hotline could be used to root out where there are flawed preferred-supplier lists (PSLs) of umbrellas operating.
"Often such PSLs are underpinned by a financial arrangement between the recruitment agency and their preferred umbrellas. The recruitment agency may encourage workers into a dubious scheme if they're the highest payer, and I know this does happen.”
According to data from the TUC, up to half of agency workers are now employed through umbrella companies. It recently found 94% of workers it questioned said they were forced to work through umbrella companies.
Last month the Court of Appeal ruled that workers are entitled to claim for untaken holiday leave – leaving many umbrella companies facing retrospective claims for pay that they thought they’d lost.
The ruling said umbrella companies must “specifically and transparently” give workers the opportunity to take paid annual leave within the holiday year.