Contractors’ Questions: How much are umbrella company contractors paid under the CJRS?

Contractor’s Question: I’m an employee of an umbrella company whose last assignment for a local authority ended on March 13th. I am over 70-years-old, putting me at increased risk from covid-19 and so I’m following Public Health England’s advice to self-isolate for 12 weeks, at the same time as seeking further employment working from home.

In the meantime, I’ve submitted a claim for Statutory Sick Pay to my umbrella company but it is refusing to process it without evidence that I have a letter from the NHS stating I’m at high risk of covid-19, apparently owing to certain contractual conditions. My GP has provided a letter indicating that owing to my age and existing medical conditions, I am advised to self-isolate for 12 weeks and in the letter, he states that I am entitled to SSP.

But my umbrella is still refusing to process my claim. I believe that I’m entitled to SSP and the umbrella has misinterpreted the Statutory Sick Pay (General) (Coronavirus Amendment) Regulations 2020. What can I do? Also relating to umbrella company working, why are umbrella employees only entitled to 80% of National Minimum Wage, irrespective of earnings, if we are furloughed due to coronavirus under the CJRS, which opened yesterday?

Expert’s Answer: I’ll tackle your last question first. For payments to umbrella company workers under the Coronavirus Job Retention Scheme, it’s all to do with the way in which income is classified when working via an umbrella company, and what this means when the very specific criteria of the CJRS are applied.

When working via an umbrella company, payment is made to the employee via a combination of basic pay at National Minimum Wage (NMW), Holiday Pay, and Commission/Bonus. In essence, the umbrella company employs the worker at the rate of NMW. This rate becomes their fixed employment rate and when the worker moves from assignment to assignment the commission (and holiday pay) components will grow or shrink in size in order to accommodate the varying assignments rates. Commission payments are discretionary rather than compulsory, because there might be some instances in which the assignment rate is so low that there is no scope for an additional commission payment on top of the NMW and Holiday Pay amounts.

Structuring things in this way allows the umbrella company to offer continuity of employment to its employees across a range of different assignments, giving the worker the flexibility to work at different rates of pay.

What your furloghed umbrella pay comprises

Problems arise, however, when the specific criteria of the CJRS are applied. The scheme makes clear that when calculating pay entitlement under furlough, the employer is not to factor in any amount that would be payable as a discretionary bonus or commission. The calculation should instead be based on the fixed earnings of the worker in question. Unfortunately, this means that the umbrella employee is only entitled to 80% of their fixed earnings (i.e. NMW), not 80% of the combined value of NMW and any commission that they may have been receiving prior to requesting furlough.

As we all know, the scheme was developed very quickly, and was also designed with traditional employment scenarios in mind where the purpose of commission and bonus payments are very different. The umbrella industry continues to lobby government for further clarification. We believe that this restriction is an unintended consequence of the scheme criteria and not a deliberate intention on the part of government. Hopefully progress can be made. 

Playing catch-up, not malicious

Regarding your own battle with your umbrella, the Statutory Sick Pay (General) (Coronavirus Amendment) Regulations 2020 came into force on March 13th. These regulations amend regulation 2(1) of the Statutory Sick Pay (General) Regulations (1982) in order to provide further access to SSP for those incapable of work due to needing to isolate themselves from others in accordance with official advice on coronavirus (Covid-19). In essence, isolation to prevent the spread of, or contamination by coronavirus, is now classed as an acceptable reason for being unable to work and therefore for claiming SSP.

The evidence that you have supplied to the umbrella company should be sufficient for your claim for SSP to proceed, so it is unusual that they are continuing to deny your claim. It would be useful to know the basis upon which they are refusing to process your claim given that you appear to have supplied them with the relevant evidence that they requested from you. My gut reaction would be that there is nothing malicious about the refusal; it’s more than likely the case that the umbrella company is simply playing catch-up on the flurry of legislatives changes and guidelines that have come through recently. Good luck broaching it with your umbrella again!

The expert was Stuart Marquis, a manager at umbrella company Liberty Bishop.

Tuesday 21st Apr 2020
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Written by Stuart Marquis

Stuart Marquis started serving the contractor industry back in 2005 and he is now a business development manager at FCSA-accredited accountancy and employment services firm Liberty Bishop, a well-established umbrella company. He specialises in helping contractors and their recruiters navigate compliance.

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