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Umbrella company guidance is lip service, say experts

Julia Kermode, CEO of PayePass called the new guidance 'half-baked'

The government has come under fire after publishing guidance on umbrella companies deemed inadequate by payroll experts.

Last week (30 November), government published guidance for recruitment agencies and employers, outlining responsibilities that employment businesses have when engaging umbrella companies.

Umbrella companies employ agency contractors who work on temporary contract assignments, usually through a recruitment agency.

They manage the way workers get paid through Pay As You Earn (PAYE), deducting tax and NI contributions.

They have been criticised by workers rights bodies including the Association of Independent Professionals and the Self-Employed (IPSE) and the Trades Union Congress for unfair pay and pension reductions, as well as involving unwitting employees and agencies in tax evasion schemes.

Read more: Employees see "no benefit" of working for umbrella companies

New guidance details the steps recruitment agencies should take to protect their own business, along with the workers engaged via umbrella companies and the wider supply chain.

However, Julia Kermode, CEO of umbrella company compliance specialist PayePass, said the guidance is largely unhelpful.

Speaking to HR magazine, she said: “The government’s latest guidance on umbrella companies is basic at best. With tax avoidance schemes getting smarter and continuously exploring new ways to lure in recruiters and workers, this document is nowhere near comprehensive enough. 

“It’s all straightforward, widely understood guidance that won’t stop a recruitment agency from falling into the trap of engaging a non-compliant umbrella company.”

After the Autumn statement failed to mention umbrella companies, the new guidance could be a bid to silence critics, according to Paul Newsham, CEO of the Payroll Compliance Authority.

Speaking to HR magazine, he said: “It seems like no coincidence that this guidance has been published the week after the Autumn Statement made no mention of regulation of the umbrella sector. It is a way of encouraging self-regulation and perhaps buying time.”

Yet Kermode said the move did not regulate non-compliant umbrella companies.

She added: “I would say I’m surprised by the government’s alarming lack of action, but in truth, it’s an all too familiar story. Rather than regulating the umbrella industry and holding those facilitating tax avoidance responsible, the government continues to sit on its hands. As far as I’m concerned, half-baked guidance like this is little more than lip service.

“While this document will point recruiters in the right direction, agencies should take matters into their own hands and prioritise compliance themselves – otherwise, they leave themselves and the workers they engaged, exposed.”

Read more: Umbrella firm accused of skimming money from contractors