Unite Press Release
Immediate release: Friday 24 February 2017
Unite demands government outlaws umbrella companies
Unite, the country’s biggest union for construction workers, has called for umbrella companies to be outlawed after a BBC report exposed how construction workers are falling victim to wage theft.
The union made its demand after BBC Look North today (February 24) carried an expose on how workers operating via umbrella companies in construction and other sectors are having huge deductions taken from their pay.
Umbrella company workers have to pay employers’ and employees’ national insurance contributions as well as income tax, a tax rate of 45.8 pence in the pound on eligible earnings. Workers often have their holiday pay rolled into the rate, meaning they are unpaid when taking leave. If they pay into an auto-enrolment pension they have to pay both employee and employer contributions. Umbrella company workers have to pay a fee of around £20 a week to be paid in this manner.
Unite have recently established a bogus self-employment unit to step up their support of members who are being denied basic employment rights. The unit is also targeting umbrella companies.
Acting general secretary, Gail Cartmail, said: “Umbrella companies are highly immoral and rip off workers. The government need to end the misery of umbrella company workers by outlawing this practice and all forms of bogus self-employment.”
“Unite has already succeeded in outlawing umbrella companies for example on Hinkley Point. The Scottish and Welsh governments and several local authorities have introduced measures outlawing umbrella companies on public sector contracts. If the government fails to act we will step up pressure on all public and private sector organisations to ban these sinister organisations.”
“The message is loud and clear Unite are coming for rogue employers who increasingly rely on false self-employment. We will leave no stone unturned in exposing the blatant unfairness of umbrella companies, ending exploitation and getting justice for our members.”
The government has previously estimated that 430,000 workers are paid via umbrella companies. Unite believes that this figure is an underestimate as unscrupulous employers in sectors such as logistics, supply teaching and pharmaceuticals are increasingly using this form of employment.
Notes to editors:
The huge growth in umbrella companies operating in construction began in April 2014. This was a result of government legislation which attempted to outlaw employment agencies from bogusly self-employing construction workers. Overnight the industry moved to the umbrella company model in order to avoid paying employer’s NI contributions.
For more information please contact Unite communications officer Barckley Sumner on 020 3371 2067 or 07802 329235.
Peter is a supply teacher in his 60s who has been forced to sign up to an umbrella company – or effectively abandon hope of getting any more work. Linda, 42, who has taught for 11 years says she is losing £100 a month because of the fees her umbrella firm charges. Another supply teacher told us his take-home pay has been “drastically reduced”.
Few people will have heard of umbrella companies, yet critics say they have become the latest way to exploit more than half-a-million temporary workers in the UK, denying them basic employment rights and shifting the employer’s responsibility to pay national insurance contributions (NICs) and pensions.
Usually, supply teachers hired under an umbrella arrangement are paid extra, say £140 a day rather than £120. But from this they have to pay two lots of NICs – both the employee’s rate and the 13.8% employer’s rate. The extra pay is also supposed to cover holiday entitlements and pensions, too. What’s more, there are usually admin fees on top.
According to teachers’ union NASUWT, almost a third of supply teachers have been forced to join an umbrella company in order to get work from an agency. Patrick Roach, deputy general secretary, said: “We are finding that more and more supply teachers are being forced into this form of self-employment without any choice.”
The National Union of Teachers also has “serious reservations”. It says the main concern is “one of principle” adding, “the high fees charged by agencies and umbrella companies drain funding for education away from schools – but they still pay supply teachers much less than those directly employed by local authorities and schools. Furthermore, many umbrella companies are based overseas in order to avoid liability for tax on their profit
All the teachers Guardian Money spoke to would only agree to be quoted on the basis on anonymity, fearing that if identified they may not obtain work.
Linda told us she had “grave concerns” about using an umbrella company and having to pay fees for administration she would have done herself. “If I earn more than £180 I am charged between £15 and £28 simply for using the agency’s nominated umbrella company,” she said. “Other supply teachers I know are in the same boat. Over four weeks this easily adds up to over a £100.”
Peter said that there was now no choice about whether you were paid by the agency or an umbrella firm. “I have found them to be at best unhelpful and at worst corrupt,” he said. “As well as having to pay a fee, they cannot be relied upon to pay what you have already earned by prior agreement with the supply teaching agency. It can take weeks or months to be paid. They deduct a large fee and charge the teacher the employer’s NICs.”
Another teacher claimed he had been short-changed. “The rate does not allow for the fact we have to pay employer’s NICs,” he said. “Also, the company the agency uses for payment charges £6 per day service charge to employees.”
Umbrella companies aren’t just common among supply teachers – the practice is rampant in the construction industry and is moving into other sectors. When Katherine Petts (not her real name) came to the end of her contract as a pharmaceutical company worker, her employment agency, Hays, offered her a nine-month contract doing a similar job on the same salary. “It seemed perfect, my salary was £40,000, and I was able to step into the same role.” But then came the sting in the tail – she was told she either had to join an umbrella company or set up a limited company to get paid.
She decided to opt for the umbrella company. “The idea of setting up a limited company just seem too onerous,” she said. But within a fortnight she realised that meant she was £75 a week worse off. “The fee is £22 a week and I also have to pay both employer’s and employee’s NICs. I also chose to take my holiday pay upfront, which you would think would make me better off, but it has not. I’ve also been told I will have to, at some point, join a pension as part of auto-enrolment. That will mean I pay both my own and the employer’s pension contributions.
“In my old role I was temporary staff and paid on the PAYE system. Here I am technically self-employed paying both employer and employee tax, and it sucks. I’m going to have to look for another job – £75 a week is our food bill and then some.”
UCATT, the union which represents construction workers, is leading a fightback, and has described these companies as a “con-trick”. New government rules in 2014 were designed to tackle the sham of “self-employment” among construction workers in the hope they would be paid on a normal PAYE basis. “Instead, overnight, thousands of construction workers were given no option other than to operate via an umbrella company,” said UCATT. It accuses the industry of “blatant tax dodging”, calculating that for a £700-per-week construction worker, HMRC picks up more than £200 in tax when they are directly employed, but less than £150 when they go through an umbrella company.
The union was behind a motion overwhelmingly passed at this year’s TUC conference to fight the use of umbrella firms. The TUC’s general secretary, Frances O’Grady, said: “We have real concerns about the growth in umbrella companies around the UK, which could lead to an avoidance of basic employment rights and tax obligations.
“There are often long supply chains involved and it can be very difficult for workers to enforce their rights and get treated fairly.”
A spokesperson for Hays said that the way its temporary workers were paid was at an individual’s discretion. “Neither Hays, nor the client, dictates this, nor benefits from one pay arrangement over another. The onus is therefore on the individual to choose the option that is most appropriate for them and to check any companies they decide to work with,” it said.
The trade association representing umbrella companies strongly disputes the criticisms. Julia Kermode of the FCSA (the freelancer and contractor services association) cites case studies where supply teachers have been very happy to use umbrella companies – especially where they may be working in several different schools across the week, possibly through different agencies. Then the umbrella makes payments smoother and more efficient.
Kermode says UCATT’s criticisms are based on a misunderstanding about tax. “There should be an uplift on the rate [when paid via an umbrella company] to take account of the employer’s national insurance,” although she acknowledges that it can’t be guaranteed in each and every case that the worker receives the appropriate uplift.
“When unions first became aware of umbrella firms they were concerned about the apparent deduction of employers’ NICs from pay. However, this deduction should be factored into calculating the assignment rate, ie, it is in addition to workers’ gross pay. All employers are legally required to pay employees’ NICs, as well as processing employee deductions.
“Umbrella firms enable individuals to receive all benefits of employment whilst working on numerous different assignments. Good firms are wholly transparent in their dealings with workers, providing them with a clear contract of employment, all statutory rights and benefits, and transparency in how their pay is calculated.”
Unite is Britain and Ireland’s largest trade union with over 1.4 million members working across all sectors of the economy.
The general secretary is Len McCluskey.
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