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A review of the government regulations leading to umbrella company exploitation


The Trades Union Congress (TUC) has warned that the government's 'off-payroll working rules', which define the current interpretation of IR35 tax status, could drive a surge in umbrella company exploitation in the post-pandemic period.


According to the TUC, the government's own guidance on the rules states that individuals employed by an umbrella company are unlikely to fall within their scope.


Because of this, the organisation is concerned that "transferring contractors to umbrella companies will be seen by some companies as a convenient way to continue to shirk their tax and employment rights obligation".


Effects of the pandemic


In combination with the rules, there is also an effect due to the pandemic, which has led to a shortage of available labour in some sectors and a surge in demand for employees as businesses open back up.


Yet the TUC says there is "a gaping hole in enforcement" due to the government's failure to properly regulate the umbrella company sector.


This is in spite of a recommendation from the Taylor Review into Modern Working Practices to step up regulation and enforcement in the industry.


What the TUC wants


The TUC is asking for several measures to be put in place by the government, including:

  • A total ban on umbrella companies, instead requiring employment agencies to directly employ and pay the staff they place.

  • Joint liability laws in supply chains so that contractors and end-clients share a responsibility to uphold employee rights.

  • New rights for trade unions and better access for trade unions into workplaces.

TUC general secretary Frances O'Grady said: "Our inadequate regulations let dodgy umbrella companies off the hook - allowing them to act with impunity ... Enough is enough. It's time for ministers to ban umbrella companies, without delay."


A better alternative?


Could there be a better way than to ban an entire sector due to the unscrupulous activities of those who seek to manipulate its legitimate benefits?


In a response published on the online recruitment news website Onrec, Shazia Ejaz, director of campaigns at the Recruitment & Employment Confederation, said:


"There are many compliant umbrella companies out there which provide valuable services - but clearly there are too many which act unethically and exploit loopholes in the law.


"We're glad that the government is moving forward with the creation of a single labour market enforcement body which will have the power to regulate umbrella companies."


The REC advises members to conduct due diligence on their supply chains and to ensure they work with umbrella companies that operate with "fairness and transparency".


Umbrella services to trust


MyPay+ are proud to provide umbrella company services that clients and contractors alike can trust.


We are Professional Passport accredited, after passing a stringent compliance audit, and are in the process of gaining more third-party industry accreditations.


Our suite of outsourced payroll services include IR35 protection, as well as a number of other compliant and trustworthy options to manage a variety of different admin concerns.


To find out more, read our FAQs or contact us directly at sales@mypayplus.co.uk or 01925 912200.