Dispatches targets umbrella companies: Industry organisations respond
In the episode Dispatches went undercover to a meeting with an umbrella group, MAC Professional Solutions. Posing as the owner of a recruitment agency, a reporter was told how he could lawfully save money in PAYE and NI by employing workers through an umbrella firm.
General manager Patrick Shaw explained the avoidance scheme saying, “There's tax evasion - illegal tax avoidance which is perfectly legal. It’s, you know, helping the contractors avoid paying tax legally and we do that by use of contractor’s expenses.
“You're saving money and you're saving a good chunk of money - if I'm lucky enough to have a lot of contracts with your agency I'm making a lot of money. “
Shaw also explained how workers on one of his avoidance schemes could be employed below the national minimum wage and would not be entitled to key rights “They’re not classified as an employee or worker, so technically the National Minimum Wage is £6.50 doesn’t exist&hellip To be perfectly frank, they've got no holiday pay rights, they've got no employee rights&hellipthey've got no worker rights.”
Parasol founder and chief executive Rob Crossland said: “Any umbrella company that flouts minimum wage legislation cannot call itself compliant.
“Failure to pay workers the minimum wage is illegal and unethical. Such behaviour deserves to be exposed and punished.
“However, I am concerned that this investigation could tarnish the reputation of our industry in the eyes of the business community and general public.
“Legitimate umbrellas, such as Parasol, always adhere to employment law – including minimum wage legislation – and do not use complex mechanisms involving expenses or salary sacrifice schemes in order to do so.
“They also offer workers guaranteed hours of work, holiday pay, sick pay, paternity/maternity pay and access to a workplace pension.
“As HMRC itself recognised in its recent discussion paper on travel expenses, employment via an umbrella company is an attractive option for many skilled, professional, high-earning contractors.
“It’s frustrating that last night’s broadcast did not make this clear.”
Derek Kelly, Parasol’s managing director, added: “The Government has sufficient powers to immediately put out of business those umbrella businesses that break the law. What is needed is significant enforcement action to once and for all clean up the industry by eliminating rogue traders.
“This should include going after the personal assets of the owners of these businesses, and those so-called professional advisers who profit by constructing artificial schemes to target the most vulnerable workers in society.”
Responding to the Dispatches programme, Matthew Brown, Managing Director of giant group comments:
“The reputation of all umbrella companies should not, in my opinion, be tarnished by those minorities that are willing to use loopholes to their benefit. It’s important to remember that while there are some cases of poor practice in the UK, there are also an extensive number of compliant umbrella businesses as well.”
“It is clear that economic growth depends on the continued flexibility of the UK labour market, and it is also clear that umbrella employment supports this flexible workforce. Unethical practices such as those identified in the Channel 4 programme should certainly be stopped and we welcome the work of professional bodies such as the Freelancer and Contractor Services Association (FCSA) in addressing these issues. As a member of the FCSA, giant abides by a rigorous code of conduct that does not tolerate such immoral activity. While the crackdown on such attitudes continues, contractors, recruiters and businesses should remain highly vigilant as to any such behaviour and ensure they are working only with an umbrella business that is committed to remaining compliant.”
The Channel 4 Dispatches programme (aired Monday 19 January, 20:00) exposed some unethical practices that we know take place within the umbrella sector, says the FCSA.
As a professional body for umbrella employers and accountancy providers, the Freelancer and Contractor Services Association (FCSA) has long been campaigning to raise standards and stamp out bad practice where it exists.
Responding to some of the issues raised in the programme, Julia Kermode, FCSA’s chief executive said: “We are increasingly concerned at the proliferation of such poor practice, in particular because it unfairly tarnishes the many compliant businesses that work hard to ensure that they operate to the highest possible standards.
“Any breach of national minimum wage is illegal and FCSA does not support, nor represent, any firm that operates in this way. Channel 4 has illustrated the sort of abuses that can occur, which should not be tolerated. Indeed, FCSA is uniting the compliant umbrella sector to work together with HMRC to develop policy changes that will specifically target these unethical practices, and work to eradicate them.
“Whilst we welcome Channel 4’s exposure to bad practice, we also wish to redress the balance because umbrella employment is a positive choice for many. It enables workers to undertake a number of temporary assignments whilst having employment rights, all statutory benefits, and continuity of employment.
“FCSA has a rigorous code of conduct that does not tolerate unethical practice, and our members are required to demonstrate compliance annually through an independent review undertaken by experts who are regulated accountants and lawyers. This distinguishes our members from the practices of some other umbrella companies that unfairly tarnish the reputation of our sector.
“The message is simple agencies, contractors and end-hirers concerned about poor practice should choose to work with FCSA members to be assured of the highest possible ethical standards.”