Some 600,000 UK workers are believed to operate via "umbrella companies" with the hidden cost to HMRC thought to be in the region of £4.5 billion a year and the cost to works of withheld holiday pay thought to be worth £2.5 billion a year.  Given the recent changes to IR35 legislation and enforcement, some believe that in fact the use of umbrella companies is only on the increase.  

The leading recruitment sector body, the Recruitment and Employment Confederation (REC), has published a four-point plan to protect workers from poor practice by umbrella companies and bolster worker protection by recruitment agencies. Among the REC's recommendations is the creation of a whistleblowing hotline for workers to report umbrella company abuse to HMRC and the provision of a legal definition of "umbrella companies" which would enable comprehensive regulation by the government.

 

The publication of REC's plan follows the submission of a policy document to the Treasury and Department for Business, Energy and Industrial Strategy (BEIS) by Rebecca Seeley Harris, a former Senior Policy Adviser to HM Treasury, which made a range of recommendations for eradicating umbrella company abuse. The document was published alongside campaigning efforts from other industry experts and unions including the Trades Union Congress (TUC), and advised the government to reappoint a Director of Labour Market Enforcement as a matter of urgency, as well as investigating whether umbrella companies and other intermediaries - if they are to be permitted - should be licensed. Ms Seeley Harris is calling for urgent changes because of the rise in the use of umbrella companies as a result of the COVID-19 pandemic and the IR35 changes which came into force in April 2021.

Frances O’Grady, the TUC’s general secretary, said: “Everyone deserves decent work. But a lack of regulation is allowing dodgy umbrella companies to operate with impunity......ministers must consider whether umbrella companies should be allowed at all. Employers shouldn’t be able to farm out their duties to a long line of intermediaries – washing their hands of any responsibility.”

The writer has long since concluded that umbrella companies have an inevitable shelf-life: they remain an anomaly in the employment status of workers and, ultimately, with HMRC losing out financially to the tune they are - even before the purported increased use of such companies - it surely can only be a matter of time before the rain finally comes through these umbrellas once and for all?

Employers who are using umbrella companies as a material part of their business model are advised to take legal advice and to properly understand their options and risks going forwards.