TUC research has estimated that half of all agency workers are being employed through umbrella companies – an employment arrangement that is frequently used by employers to dodge taxes and their legal obligations to their workers.
Umbrella companies are used as a ‘middle man’ between the employment agency and the end client. They operate a PAYE system through which agency workers recieve their wage, and often workers will be contracted to the umbrella company as well as the organisation for which they conduct their duties.
This causes confusion about who the employer is and therefore which body is responsible for meeting workers’ employment rights, complicating the process of enforcing the law when workers are exploited.
The TUC said workers in this position are particularly vulnerable to unfair deductions from pay, including instances in which umbrella companies prevent workers from using their legal right to annual leave and pay. It is also known that umbrella companies coerce workers into tax evasion schemes that often leave them facing huge tax bills.
It is expected that such issues will worsen due to a forecasted increase in agency work post-pandemic, and because of changes to “off-payroll” IR35 rules that the TUC predicts will lead to unscrupulous employers misusing umbrella companies even more.
The TUC said the government has “failed” to regulate umbrella companies and left a “gaping hole in enforcement” even as it attempts to tighten some other areas of exploitation through its newly announced Single Enforcement Body.
Frances O’Grady, TUC General Secretary, said: “Everyone deserves decent work. But too many low-paid workers are denied the wages they were promised and basic legal rights like holiday pay because they work for umbrella companies.
“Lots of them are the key workers we all applauded – like social care workers, teachers and coronavirus testing staff.
“These scandalous workplace practices have no place in modern Britain. But our inadequate regulations let dodgy umbrella companies off the hook – allowing them to act with impunity.
“Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries.
“Enough is enough. It’s time for ministers to ban umbrella companies, without delay.”
As well as abolishing umbrella companies, the TUC has called for joint liability laws to be imposed on the end client of supply chains and stronger trade union rights, including to access workplaces.