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Tribunal highlights payment confusion for umbrella workers

A tribunal has ruled against a worker whose umbrella company had been making unauthorised deductions from their monthly salary.

In the case of Zojota vs Umbrella Company Limited, the former claimed their employer wrongfully took money from their payslip in the form of national insurance contributions and apprenticeship levy money.

However the company claimed any deductions were coming from an assignment rate – charged to a business in exchange for the worker's services – rather than Zojota's pay. 

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The claim was dismissed as the tribunal found no unauthorised deduction of pay occurred.

The tribunal judge said: “It is the respondent’s obligation as the claimant’s employer to make relevant deductions from that fee, which include employers’ national insurance and the apprenticeship levy before determining the claimant’s gross salary. Once the claimant’s gross salary is determined, the respondent then deducts tax and national insurance, leaving the claimant with his net pay.”

Fred Dures, founder of umbrella payroll compliance auditor PayePass, said the case highlighted the confusion felt by umbrella workers when it comes to payments.

Speaking to HR magazine, he said: “The confusion, in my opinion, stems from employees not properly understanding and accepting that what the umbrella is paid by an agency or end-client is actually its fee and not an employee's to keep. 

“In simple terms, an umbrella employer seconds out the services of its employees and charges the assignment fee to the end-client – in reality, it's no different to a traditional employer instructing its employee to provide services to a client. What the umbrella receives is the gross fee for the secondment, separate to which is the employer's legal requirement to pay an agreed salary."

Umbrella companies Orange Genie and Liquid Friday were both accused of skimming money from employees' pay earlier this month, which both employers denied.

Employment agencies can help clear up some of the confusion, Dures added.

He said: "As things stand, there will continue to be confusion, which needs to be cleared up and eliminated from the outset of the working relationship. This can be achieved with a properly constructed key information document (KID), which employment agencies must issue to candidates.

"In addition to this, it’s best practice to provide workers with a written explanation regarding payment details to avoid further confusion."