Umbrella found guilty of deducting ERNI & AL

[SimonMac]

Aboslutely and, IMO, has always needed challenging. As I just said, if FCSA members come out badly in both the furlough payments issue and this one then the FCSA needs to sort out their tulip. It's bad enough running their membership like a cartel with a bar so high it's throttling their own industry so to be representing the companies that are falling short in both these issues is inexcusable.

Forgive me if I am naive, but won't the only thing that comes out of this be the wording in contracts from brollys? Contractors will still be paying the ERNI and AL, it will just be worded as an assignment rate or similar

[northernladuk]

Forgive me if I am naive, but won't the only thing that comes out of this be the wording in contracts from brollys? Contractors will still be paying the ERNI and AL, it will just be worded as an assignment rate or similar

I must admit I don't know much about the deductions side of it but yes, I'd guess so. The brollies/clients won't be taking the hit on this so I suppose the contractors bottom line is the only place it can still come from. Still needs doing clearly and legally though. I'm sure we've touched on this in posts in the past but it's not my area so didn't look in to it much.

[elsergiovolador]

But doing the 'right' thing the wrong way is an issue. Enough of an issue for it to win a court case surely. Lowering the rate might be the same thing but the umbrella has to action it properly which it appears they aren't. Hardly 'not really an issue'.

Well, that looks like purely like a check box exercise - the outcome is the same, one just needs to follow right steps that objectively don't make a difference. Most likely brollies just need to change wording on their documents to be compliant. For example from: "you will receive your daily rate minus Employers NI, Apprenticeship Levy and our costs" to "you will receive your new negotiated rate that is reduced by Employers NI, Apprenticeship Levy and our costs.".

That's on HMRC guidance:

Because the fee payer has a liability to pay secondary Class 1 NICs, they are likely to wish to renegotiate the fee with the intermediary to reduce the rate for the job. They cannot lawfully deduct the secondary NICs from a fee that has been agreed, but could, depending on the contractual terms, negotiate a lower fee.

But according to the quote I posted, this appears to be illegal and I'd be interested to see why and potentially do away with the preferred suppliers list which are a mess. It's generally just the FCSA cartel which might help avoid the scheme brollies but isn't really a fair list due to the costs and barriers to membership. It's interesting to see the number of FCSA members that screwed up furlough payments and will be even more interesting to see which of their members fall foul of this judgement. It could ask some very uncomfortable questions about wether FCSA membership is really meaningful anymore.

This is how I see this law:

And just palming both items off as 'just right wording' is just your usual wooly bollocks as well. It's just wording when SC clearance candidates only are asked on gigs but it's against govt guidance. We shouldn't just shrug it off as 'just wording'. It needs fixing. How, I've not idea, but it needs looking at.

It's not going to be fixed because it has been designed to make profit for certain companies (if it quacks like a duck...)

[northernladuk]

Well, that looks like purely like a check box exercise - the outcome is the same, one just needs to follow right steps that objectively don't make a difference. Most likely brollies just need to change wording on their documents to be compliant. For example from: "you will receive your daily rate minus Employers NI, Apprenticeship Levy and our costs" to "you will receive your new negotiated rate that is reduced by Employers NI, Apprenticeship Levy and our costs.".

That's on HMRC guidance:





This is how I see this law:





It's not going to be fixed because it has been designed to make profit for certain companies (if it quacks like a duck...)

Can't argue with any of that to be fair.

Question on the change in wording. Won't it also affect the rate advertised as well though? I'm getting the message nothing will change with the actual money in bank but at least the figure quoted for the gig will be a true reflection and not a figure but with hidden charges? No change to the contractor take home but that clarity is important. Saying 100 quid and they take bits off so only get 60 quid in hand is going to piss people off. 90 quid and you get 60 in your pocket, although no different doesn't create that 'im being ripped off' feeling.

But yeah, appears I am just overdoing the symantics here.

[ComplianceLady]

6cats contract was very poorly written as I understand it.

Effectively the pay rate for the Agency to work at is usually quoted as a limited rate - i.e. £25 per hour limited. We have a calculator to work out a gross PAYE rate but as deduction rates can vary based on hours worked each week and the overall pay bill for the company it uses a straight % which is usually higher than the actual deduction.

For example - You calculate £25 *13.8% for Employers NI when in reality the deduction would be Total Pay - Lower earnings level *13.8%. Structuring it so the rate is £25 minus employer costs gives the benefit of the variation to the contractor.

I think it should be crystal clear to a contractor what they'll end up with but where it is I don't see that there's any unfairness in it.

We've stopped taking referral fees from umbrellas - I understand why it's perceived unfairly and when I spoke to our recruiters about it they were quite happy to give it up. But we still have an ASL and only allow FCSA accredited - it's just too hard to manage without some sort of list. In the last 2 weeks I've had to speak to 2 contractors desperate to use tax avoidance schemes - without a way of filtering it's just the wild west.

[NotAllThere]

But yeah, appears I am just overdoing the semantics here.

Not really. The advertising of £400 a day, when it's "really" equivalent to a salary of ~£300 a day is misleading. Perhaps roles should be published with a nominal salary equivalence - but I can't see how it would ever happen.

[ladymuck]

Forgive me if I am naive, but won't the only thing that comes out of this be the wording in contracts from brollys? Contractors will still be paying the ERNI and AL, it will just be worded as an assignment rate or similar

I must admit I don't know much about the deductions side of it but yes, I'd guess so. The brollies/clients won't be taking the hit on this so I suppose the contractors bottom line is the only place it can still come from. Still needs doing clearly and legally though. I'm sure we've touched on this in posts in the past but it's not my area so didn't look in to it much.

I haven't read all the responses yet so apologies if already covered.

The client wants a body and is willing to pay X (plus agency commission). They don't want to deal with Ltd Co freelancers due to having the frighteners put on them by HMRC so they stipulate use of umbrellas, possibly as a solution recommended by their agency if they are clueless.

The agency advertises the rate of X, maybe a little less if they want to top up their commission.

The umbrella illustration is X less all the (now illegal) deductions.

The taxes have to be paid, no-one is arguing that. However, who is responsible for advertising the rate being paid? The client has a budget and the agency doesn't necessarily know the ErNI and AL element. It's only once the umbrella is engaged that the true rate is known.

[elsergiovolador]

The taxes have to be paid, no-one is arguing that. However, who is responsible for advertising the rate being paid? The client has a budget and the agency doesn't necessarily know the ErNI and AL element. It's only once the umbrella is engaged that the true rate is known.

This is also just wording. They key is that the new rate is "negotiated". I think what's advertised is always open for negotiation.

[ladymuck]

This is also just wording. They key is that the new rate is "negotiated". I think what's advertised is always open for negotiation.

I suppose the agency should advertise as "X less applicable taxes" and that could be enough fluff to make it legal.

[malvolio]

I haven't read all the responses yet so apologies if already covered.

The client wants a body and is willing to pay X (plus agency commission). They don't want to deal with Ltd Co freelancers due to having the frighteners put on them by HMRC so they stipulate use of umbrellas, possibly as a solution recommended by their agency if they are clueless.

The agency advertises the rate of X, maybe a little less if they want to top up their commission.

The umbrella illustration is X less all the (now illegal) deductions.

The taxes have to be paid, no-one is arguing that. However, who is responsible for advertising the rate being paid? The client has a budget and the agency doesn't necessarily know the ErNI and AL element. It's only once the umbrella is engaged that the true rate is known.

...and that is also illegal under the existing law. You have to advertise the rate for the role payable to the worker, not an artificially inflated one to make the role more attractive. This is what Chaplin calls the Smurf Rate, attractive but non-existent.

Of course that rate may well be 30% under market, which has the same effect except you risk not seeing good people applying, but that's the client's decision.