Wage exploitation

Umbrella companies are a curse and in recent years they have spread from construction to many other sectors including logistics, warehousing, supply teaching and pharmaceuticals.

Workers forced to operate via an umbrella company are ripped off.

Today (Friday February 24) BBC Look North carried an exposé of the financial penalties suffered by umbrella company workers.

In a nutshell an umbrella company is an overarching contract where the worker becomes effectively both the employee and the employer for tax purposes.

In most cases the worker is recruited by an employment agency. They are told what rate of pay they will receive and then have to sign a series of contracts including one for an umbrella company. It is very much the case, you either agree to be paid in this way or you don’t get the job.

Huge deductions

The worker only begins to cotton on about the umbrella company curse when they receive their first payslip, while the deductions and the payslip is often nearly unintelligible, what is all too real is the low amount of pay the worker actually receives.

From the amount agreed with the employment agency, the worker has to pay employer national insurance contributions of 13.8 per cent, on top of employee national insurance contributions of 12 per cent and income tax of 20 per cent, an effective tax rate of 45.8 pence in the pound on eligible earnings.

Also in many cases the worker’s holiday pay is rolled up into the rate. This means that the worker gets a small amount of money for their holidays each week as part of their pay but when they take leave they get nothing. If the worker pays into an auto-enrolment pension scheme then, once again they are required to pay both the employer’s and the employee’s contributions.

To cap it all off the worker is required to pay the umbrella company for the privilege of being paid in this with a weekly fee of ÂŁ20-ÂŁ25. An additional charge can be made if the worker has the audacity to request their payslips are posted to them.

In a sane world this kind of worker exploitation would be illegal but sadly in the 21^st century umbrella companies, while totally immoral, are essentially legal and approved by the Treasury.

Unite acting general secretary, Gail Cartmail, said, “Umbrella companies are highly immoral and rip off workers. The government needs to end the misery of umbrella company workers by outlawing this practice.”

The umbrella company model has been round for many years and was previously used by high earning individuals with several concurrent contracts such as IT workers. In April 2014, in response to the government’s decision to crackdown on bogus self-employment in the construction industry, by effectively preventing agencies from registering workers as self-employed, rather than employing workers on a standard PAYE basis, the industry almost overnight moved its workforce over to umbrella companies.

Until April 2016, this very bitter pill was being slightly sugared as workers were able to offset their travel and subsistence against tax. This loophole was then closed by the government to increase their tax revenues.

No benefit for workers

There is absolutely no benefit for workers in being paid this way. The worker’s real employer, by using the umbrella company as a middle man, has divested themselves of any responsibility for the worker.

In early 2016 the government estimated that 435,000 workers were being paid via umbrella companies but Unite believes this figure is an underestimation as umbrella companies have spread into other sectors.

While the ultimate answer to umbrella companies is political, Unite has made considerable inroads into restricting their use. The union has secured an agreement in barring the use of umbrella companies on Hinkley Point. Unite led the lobbying which resulted in umbrella companies being banned by the Scottish and Welsh governments from public sector contracts.

A number of local authorities in England have also agreed to bar the use of umbrella companies on their future construction projects. Unite are stepping up the pressure on other local authorities follow suit.

Unite have also recently established a new unit to tackle bogus self-employment and this will also be targeting umbrella companies.

Gail Cartmail added, “The message is loud and clear Unite are coming for rogue employers who increasingly rely on false self-employment. We will leave no stone unturned in exposing the blatant unfairness of umbrella companies, ending exploitation and getting justice for our members.”