Construction trades union Unite has accused the government of washing its hands of thousands of workers who are paid via an umbrella company.
There has been a huge surge in the number of workers forced to be employed via umbrella companies in recent years, with the highest proliferation of workers employed via umbrella companies is in the construction industry but workers in the NHS, local government, road haulage, education and warehouse/logistics are also affected.
In the majority of cases workers are initially engaged via an employment agency, but are then told that they will be paid via an umbrella company.
Typically, under these types of companies the worker has to pay both the employer’s and employee’s national insurance contributions in addition to income tax, which amounts to 46 per cent of a worker’s eligible earnings. The worker is also charged an additional sum – often up to £25 a week – for the ‘privilege’ of being paid in this manner.
Unite raised their concerns following freedom of information requests which revealed that the Treasury last examined how many people are paid via an umbrella company over 3 years ago (2015).
Umbrella company workers who also pay into an auto-enrolment pension, suffer further when they have to pay both the employer’s and the employees’ contributions. When pension contributions rise to 8% next year (3% employee and 5% employer), many umbrella company workers may find these unaffordable.
Also many umbrella companies roll holiday pay into the rate, which means that workers get a small amount of money on a weekly basis and then are not paid when they actually take annual leave.
In 2015 the Treasury estimated that 260,000 workers were employed by umbrella companies, but this figure was considered an underestimate and the practice has increased further since then.
Unite assistant general secretary Gail Cartmail said: “The government has clearly washed its hands of workers who are subjected to the misery of being paid via umbrella companies.
“Thousands of workers are being exploited by umbrella companies, but the government clearly has no interest in alleviating their misery as they are not even monitoring how many workers are being paid in this way.
“Workers are being fleeced and deductions are so great that saving for your old age will often be unaffordable as workers can’t make ends meet day to day. This is simply storing up further problems for the future.
“If the government had an ounce of decency it would outlaw the use of umbrella companies and introduce strict rules to ensure workers are paid by standard PAYE.”
Unite has been successful in reducing the use of umbrella companies in construction by securing agreements that they are outlawed on major projects, including Hinkley Point. The Scottish and Welsh governments and a growing number of local authorities have also introduced measures to outlaw umbrella companies on public sector contracts.
Last week Unite revealed that bogus self-employment in the construction industry has continued to grow, despite the government’s reforms in 2014 which were designed to reduce these numbers and which in turn laid the foundations for the surge in workers forced to operate via umbrella companies.