What Labour refuses to get about umbrella companies

We’ve defended umbrella companies many times in the past, but this occasion is arguably the most important because an outright ban on all umbrellas is the Labour party’s pledge in its 2017 election manifesto, writes Graham Fisher, the chief executive of Orange Genie.

Each time so far that we’ve set the record straight about umbrellas, it has been in response to the same tired misconceptions being wheeled out to displace hard facts. It was therefore with a familiar sense of exasperation that we read Jeremy Corbyn’s manifesto pledge on page 51:

“Banning payroll companies, sometimes known as umbrella companies, which create a false structure to limit employers’ tax liabilities and limit workers’ rights.”

Usually, we characterise this kind of nonsense as a failure to understand. But this statement by a political party vying for office seems to be more than that. We believe the people who wrote this have no interest in understanding the contracting sector, or contractors themselves. Correct information about umbrella companies is readily available, which means the ignorance on display here is wilful, one might even suspect cynical and self-serving. 

This ground is now a well-worn furrow, but let’s go over it once again. So let’s dissect Labour’s pledge piece-by-piece:

‘Payroll companies, sometimes known as umbrella companies’

Umbrella companies and payroll companies are manifestly and obviously different. A payroll company would offer outsourced payroll, where umbrella companies offer employment, which is a much more complex undertaking.

We’re not saying there’s anything wrong with a payroll company, if they’re doing things correctly, but the two are not even close to being the same thing. That a tiny minority of non-compliant companies call themselves ‘umbrella companies’ when they’re not, does not excuse the Labour party’s worrying and disappointing refusal to acknowledge the difference.

We would also point out that this minority of non-compliant companies are already breaking the law. A change in the law is therefore unlikely to stop them. Current legislation, if properly enforced, would be sufficient to tackle the rogues within the contracting industry and new legislation will not be effective if it isn’t enforced. The answer, then, is to rigorously enforce the existing law.

‘Which create a false structure’

There is nothing false about the structure created by compliant umbrella companies. They are employers, pure and simple. Each employee has a contract of employment, full employment rights and continuous employment across all their assignments. Umbrella companies are bound by the same regulations that cover all UK employers.

'To limit employers’ tax liabilities’

The umbrella company is the employer and has all the liabilities an employer has. No-one’s tax liability is “limited” by the involvement of a compliant umbrella company.

'And limit workers’ rights’

As we continue to assert, and as the tax department will attest if Labour wants to ask it, umbrella companies provide employment. Umbrella employees have full employment rights. They get access to statutory payments like sick pay and maternity/paternity pay, workplace pension schemes and holiday pay. If they don’t, then there not with a bonafide umbrella company; simple as that.

Umbrella employees also have one continuous employment across all their assignments. This gives thousands of workers easier access to references, credit and mortgages. These things can be problematic for non-umbrella workers engaged directly by agencies, as each assignment will be viewed as a separate ‘employment.’

By employing contractors, operating in obedience with HMRC rules and sharing their specialist expertise, complaint umbrella companies can actually help to protect workers. As industry players, umbrellas help their agency partners to fulfil their legal obligations and improve compliance across the whole supply chain. Without umbrella companies, fewer temporary workers would have access to employment, and more would be at risk of exploitation.

It is our fervent hope that the Labour party will reconsider its bizarre and nonsensical stance.

Editor’s Note: Related –

Contractors’ Questions: Is my umbrella company ripping me off?

Contractors’ Questions: Can my umbrella take unclaimed deducted holiday pay?

Contractors’ Questions: Is an alternative umbrella worth it or worrying?

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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