Queen’s Speech ignoring Single Enforcement Body puts onus on Labour Market Enforcement Director to act on umbrella companies

Contracting experts are pinning their hopes on a new call for evidence by the Labour Market Enforcement Director -- because the Queen’s Speech omitted the Single Enforcement Body.

But even before yesterday’s speech, which contained no employment bill for the SEB to regulate umbrellas, the experts were already prepping their submissions to be brolly-led.

Asked on Monday by ContractorUK what they will tell LMED Margaret Beels in reply to her call, Professional Passport, the Association of Recruitment Consultancies and ReLegal Consulting each said – independently of each other -- that umbrellas will top their list.

'Rife non-compliance'

That’s despite “umbrella companies” being mentioned only three times in Beels’ call (and two are definitions), specifically; ‘what compliance evidence about brollies can you present?’

Signalling that his evidence will be in a one-way direction is Crawford Temple, the chief executive officer at Professional Passport.

“Non-compliance has been rife”, Mr Crawford told ContractorUK.

“There is clear evidence that the off-payroll legislation has driven more workers into umbrellas which has served to shine a spotlight on compliant and non-compliant behaviours.”

'Off-payroll rules making supply chains brittle'

Rebecca Seeley Harris, a tax lawyer specialising in the contractor sector, agrees that IR35 reform has accelerated the inflow of workers at risk from abuse.

“The off-payroll reforms have made the employment supply chain brittle and unfit for purpose, at a time when businesses are desperate for less red tape…to recover and grow. 

“This has resulted in thousands of workers being forced into the vulnerable situation of being exploited by unscrupulous umbrella companies,” she said.

'Very disappointing, but no surprise'

Founder of ReLegal Consulting, Ms Seeley Harris on behalf of the Fair Umbrella Campaign yesterday called it “unfathomable” that the SEB was left out of the Queen’s Speech.

Privately, the CEST Explained author says she is “very disappointed” that the government (who writes the speech) left out an employment bill.

But from an administration that refused to agree to the DISS to help support limited company directors during covid, it is also “not a surprise,” she further told ContractorUK, adding:

“I imagine that BEIS will revert back to the original plan of using the Employment Agency Standards Inspectorate to police umbrellas.

“We will continue to work with BEIS and the Director of Labour Market Enforcement to ensure that these vulnerable umbrella company workers get the protection they deserve.”

'Holiday pay'

As to where umbrella company workers are currently vulnerable, Adrian Marlowe, chair of the Association of Recruitment Consultancies pointed to one area in particular.

“We believe that issues are likely to surround umbrella company activity in the areas of tax compliance, and specifically payment of correct levels of holiday pay to agency workers.

“While the majority of umbrellas apply the rules correctly, it seems clear that some do not, causing concern not only to the workers, but also to agencies and hirers in the chain.”

'No level playing field'

A recruitment lawyer, Mr Marlowe also told ContractorUK that ARC’s member firms complain of “no level playing field” for umbrellas, due to the “absence of robust enforcement.”

The lawyer isn’t alone in regarding BEIS and HMRC as asleep at the wheel.

“We have seen a proliferation of disguised remuneration schemes popping up, which has led to a significant rise in contractors being hoodwinked into signing up for tax avoidance schemes that could have a significant impact on their finances,” began compliance expert Mr Temple.

'HMRC is failing to act'

Clearly concerned, Professional Passport’s CEO added: “Yet still HMRC fails to act and fails to focus on the promoters of the schemes.

“HMRC is simply not stamping down on the schemes concertedly enough and persists in chasing the victims of the schemes -- which is simply the wrong strategy and works to incentivise the promoters of such arrangements and allows them to thrive.”

Challenges “in terms of compliance and enforcement” for the three enforcements bodies under the LMDE’s remit is an area that respondents to its call for evidence can feedback on.

'Determined to continue'

Due to respond to the evidence-call, which is open until May 31st, is the Freelancer & Contractor Services Association.

“We are determined to continue to engage with relevant authorities – including BEIS and HMRC – to help shape regulation that will be effective in achieving its intended aims and that will protect the sector as a whole, including contractors and service providers, ” the FCSA said yesterday.

Its CEO, Chris Bryce, clarified his willingness to work with government amid what he called officials ‘missing an opportunity’ to introduce ideally “light-touch regulation,” in the shape of the SEB.

'Closer relationships'

But it’s equally about government being prepared to work with industry too, according to Mr Temple.

“It is vital that the government seeks to develop closer relationships with compliance bodies and the wider sector bodies.

“Compliance bodies in particular set their own compliance standards and developing a more structured approach would allow [government] departments to inform and, importantly, be informed on pressure points in the market.”

'Have-I-got-a-good-idea-for-you arrangements'

In a statement to ContractorUK, he continued: “The nature of the compliance accreditations allows faster reactions to market distortions and would help limit and restrict market access to those who apply these ‘have I got a good idea for you’ arrangements.”

But for the director of Labour Market Enforcement, it sounds as if her call will also prompt a few recommendations on what not to do.

For example, any transition to regulation should not disadvantage reputable umbrellas, and the current lack of regulation shouldn’t either, says ReLegal Consulting.

Similarly, should Beels push for a Single Enforcement Body, that push should not trigger the three other bodies under her remit to “reduce” their enforcement, Mr Temple recommends.

'Off-payroll case law having an adverse impact'

Such caveats aside, it’s generally action rather than inaction that’s required  of the Labour Market Enforcement Director.

Tania Bowers, a director of the Association of Professional Staffing Companies (APSCo) said: “We’re already seeing off-payroll case law impacting this segment of the market and the UK is at risk of diminishing its own flexible workforce if action isn’t taken.

“Self-employed status needs to be defined in legislation that differentiates highly skilled self-employed independent professionals from dependent contractors, workers, other variants of self-employment and the lower skilled, less independent elements of the gig economy.”

APSCo further urged yesterday: “Government must futureproof employment legislation and consider steps such as [the] Single Enforcement Body; licensing of the umbrella market, the mandatory use of client-accounts and the introduction of statutory compliance codes.”