Contractors' Questions: What to make of C4's exposé of brollies?

Contractor’s Question: A Dispatches programme by Channel 4 on Monday evening investigated umbrella companies with none too pretty results, especially around National Minimum Wage rules and the AWR. What should we make of it all?

Expert’s Answer: Channel 4 Dispatches made some serious allegations against one of our members, Transline, including possible breaches of NMW regulations and our code of conduct.

We will write to the agency to investigate concerns raised by the programme around the potential misuse of apprenticeships and the accusation made around potential abuse of the Agency Workers’ Regulations.

The report also raises concerns about the use of umbrella companies. For a long time we have been calling on HMRC to provide greater clarity of the regulations around umbrella companies and travel and subsistence schemes and for greater enforcement of the laws already in place.

The Expert’s Answer is based on comments by Kevin Green, chief executive of the Recruitment & Employment Confederation (REC).

Expert’s Answer: The programme exposed some unethical practices that we know take place within the umbrella sector. As a professional body for umbrella employers, we have long been campaigning to raise standards and stamp out bad practice where it exists. 

We are increasingly concerned at the proliferation of such poor practice, in particular because it unfairly tarnishes the many compliant businesses that work hard to ensure that they operate to the highest possible standards. 

Any breach of national minimum wage is illegal and we do not support, nor represent, any firm that operates in this way. Channel 4 has illustrated the sort of abuses that can occur, which should not be tolerated. Indeed, FCSA is uniting the compliant umbrella sector to work together with HM Revenue & Customs to develop policy changes that will specifically target these unethical practices, and work to eradicate them. 

While we welcome Channel 4’s exposure to bad practice, we also wish to redress the balance because umbrella employment is a positive choice for many. It enables workers to undertake a number of temporary assignments while having employment rights, all statutory benefits, and continuity of employment

The Expert’s Answer is based on comments by Julia Kermode, chief executive of the Freelancer and Contractor Services Association (FCSA).

Expert’s Answer: Any umbrella company that flouts minimum wage legislation cannot call itself compliant. Failure to pay workers the minimum wage is illegal and unethical. Such behaviour deserves to be exposed and punished.

However, I am concerned that this investigation could tarnish the reputation of our industry in the eyes of the business community and general public. Legitimate umbrellas always adhere to employment law – including minimum wage legislation – and do not use complex mechanisms involving expenses or salary-sacrifice schemes in order to do so.

They also offer workers guaranteed hours of work, holiday pay, sick pay, paternity/maternity pay and access to a workplace pension. As HM Revenue & Customs recognised in its recent discussion paper on travel expenses, employment via an umbrella company is an attractive option for many skilled, professional, high-earning contractors. It’s frustrating that last night’s broadcast did not make this clear.

The Expert’s Answer is based on comments by Rob Crossland, chief executive of Parasol.

Expert’s Answer: The reputation of all umbrella companies should not, in my opinion, be tarnished by those minorities that are willing to use loopholes to their benefit. It’s important to remember that while there are some cases of poor practice in the UK, there are also an extensive number of compliant umbrella businesses as well.

It is clear that economic growth depends on the continued flexibility of the UK labour market, and it is also clear that umbrella employment supports this flexible workforce. Unethical practices such as those identified in the Channel 4 programme should certainly be stopped.

While the crackdown on such attitudes continues, contractors, recruiters and businesses should remain highly vigilant as to any such behaviour and ensure they are working only with an umbrella business that is committed to remaining compliant. 

The Expert’s Answer is based on comments by Matthew Brown, managing director of giant group.

Expert’s Answer: The government has sufficient powers to immediately put out of business those umbrella businesses that break the law. What is needed is significant enforcement action to once and for all clean up the industry by eliminating rogue traders.

This should include going after the personal assets of the owners of these businesses, and those so-called professional advisers who profit by constructing artificial schemes to target the most vulnerable workers in society.

The Expert was Derek Kelly, managing director of ClearSky Contractor Accounting.

Editor's Note: Related Reading - Contractors, don't be fooled by imposter umbrella companies