Contractor umbrella companies give warmer welcome to Summer Economic Update 2020

Umbrella companies are giving a warmer welcome than the wider contractor sector to Rishi Sunak’s Summer Economic Statement, mainly due to the £1,000 job retention bonus..

Payable to the employer per employee brought back from furlough, the bonus is making some brollies “rub their hands” at the incoming cash, says Clarity Umbrella’s Lucy Smith.

But she cautioned that HMRC guidance promised by the chancellor as incoming this month will spell out whether and how umbrellas can pass the cash on and, if so, to whom.

“My view is that the umbrella [will pocket it to] recoup some of the lost costs of furlough and the rest goes to those who have actually provided the assignment, the end-client,” Smith says.

'Continuous employment'

A condition of the bonus -- that the worker needs to be kept on the payroll until January, fits umbrellas well, as they offer the ‘continuous employment’ which ‘Rishi’s Plan’ specifies at Chapter 2.3.

Nonetheless, Rob Sharp, chief executive of Orca Pay Group, agrees that much is riding on the full HMRC guidance, promised in the plan for publication “by the end of July.”

He said: “Brollies were responsible for the Apprenticeship Levy and holiday pay which wasn't a small amount, [so the £1,000 per returnee will]…help cover some of the costs [incurred] during lockdown and furlough.

“First and foremost however…[we need to see] the new guidance.”

'Bonus falls significantly short'

But also in an online post, Sharp asked just how many brollies will themselves still be operating by late January, as all employers must pay towards furlough wages from August.

The Freelancer and Contractor Services Association is similarly concerned.

“The £1,000 per employee bonus falls significantly short of the total financial cost for an umbrella employer…to continue to furlough their employees until the CJRS ends on October 1st 2020.”

The association, whose members includes brollies added: “Even with this cash bonus, [there will be many umbrellas] who simply cannot afford to continue to furlough without putting their business at financial risk.”

'Contractor jobs at risk'

Julia Kermode, the FCSA’s chief executive believes it is ‘another example’ of the government coming up with a policy, but not factoring the “vital” flexible workers into it.

“And, as a consequence, [this has the] potential [of] putting thousands of contractor jobs at risk, in a sector that has already suffered enough in recent months,” she warns.

Yet speaking after Mr Sunak announced the £1,000 bonus, Ms Kermode conceded it would offer “some financial support” to umbrellas “in a financial position” to keep furloughing.

'Innovative'

She also said umbrellas which supply staff to tourism and hospitality clients will like his announcement of their VAT falling to just 5% -- a ‘help with cashflow in the coming months.’

But contractor accountancy firm DNS Associates says that it is the £1k bonus which represents one of the chancellor’s more “innovative ideas.”

“He is trying his level best to….keep people in jobs,” says the firm’s Sumit Agarwal, referring to Mr Sunak saying the bonus requires employers to keep staff on until Jan 31st.

'No-brainer'

The accountant also said: “[It will] sound [like] guaranteed, confirmed income for keeping them employed. Get paid £1,000 [for] each [contractor] for keeping them on payroll?  

“It’s a no-brainer, albeit it could have been even better if it was paid in December in time for Christmas. But will it be enough, financially?”

On LinkedIn, a manager at an umbrella company serving the construction sector implied that the bonus wasn’t really a question that workers were going to get any say on.

“Why would an umbrella company pass it to the employee? It’s for the employer,” the manager said of the payment. “This is a bonus awarded to the employer, not the employee.”

'We don't have detail'

But another umbrella company, Parasol, isn’t so sure and is cautious, perhaps concerned at what the chancellor might eventually want in return.

“Employees must earn above the Lower Earnings Limit -- £520 per month -- on average, between the end of the CJRS the end of January.

“[And] payments will be made from February 2021 [but] at this point we don’t have detail on this scheme”, Joanne Harris, the company’s technical commercial manager said of the bonus.

She warned: “It is inevitable that there will be future tax increases to recover the cost of these generous schemes and that is something we will be looking out for in the Autumn Statement. Let’s hope these tax increases do not disproportionately impact the contingent workforce that has struggled to access help when it was needed.”

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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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