A survey conducted by contracting authority ContractorCalculator has uncovered alarming levels of non-compliance and lack of worker protections within the umbrella industry. The findings paint a bleak picture of systemic abuse, neglect and confusion around umbrella working.

The survey found that most contractors are forced into umbrellas against their will, with restricted choices and promotions of dubious schemes. Most are unaware of basic legal rights and compliance requirements regarding pay, pensions, and regulations. There is also widespread confusion and lack of transparency around pay rates, payslips, holiday pay accruals, and deductions, with less than half able to determine if they are being paid correctly.

The key findings show:

  •        80 per cent of contractors are told “umbrella only” when hired “Inside IR35”, demonstrating that the IR35 Reforms are directly responsible for the considerable rise in umbrella use.
  •        Of those pushed towards an umbrella, 63 per cent are given a restricted list, 27 per cent are allowed to select their umbrella, and 10 per cent are only given one choice.
  •        85 per cent are told they must use an umbrella because the role is “Inside IR35”, but only 17 per cent are given a Status Determination Statement as legally required under the Off-payroll legislation.
  •        On holiday pay, just 54 per cent understand accrued versus rollover structures. 19 per cent have had holiday pay problems, and 11 per cent have been unlawfully withheld.
  •        Half the respondents are confused over pay, with only 49 per cent understanding the difference between an assignment and PAYE rate. Just 40 per cent say they can determine if their payslip is accurate. Only 45 per cent receive the legally required Key Information Document.
  •        Shockingly, 24 per cent have not been auto-enrolled into a pension, and 14 per cent are unlawfully told they cannot even have one. Worryingly, half don’t know how to check their pension contributions are correct.
  •        37 per cent don’t understand Conduct Regulations, provisions in place to protect agency workers. 87 per cent say agencies and umbrellas have never explained these to them. 49 per cent don’t know if they have opted out of them, while 14 per cent have been (unlawfully) told they can only get the work if they opt-out.

Commenting on the results, Dave Chaplin, CEO and founder of ContractorCalculator, said: ”Our survey paints a picture of an industry rife with non-compliance and contractor exploitation. This is unacceptable, and urgent reform is needed. The onus is now on regulators and the government to crack down on umbrella malpractice.

“The government was warned about unregulated umbrellas before IR35 came into effect but failed to act. They’ve sat on data that could have prevented abuse yet done nothing. And they haven’t educated workers enough to protect themselves. The statistics speak for themselves.

“There is concern that legislation won’t come until 2025 or later, and a General Election could also stall matters. Some short-term fixes could help, like removing the ability to opt out of the conduct of employment regulations with umbrellas. It makes no sense for contractors to forfeit rights. Mandating agencies to offer payroll options, not just the umbrella way of working, would also help give contractors a choice and bolster competition and quality of service.

“While complete legislative reform may not come by April 2024, enforcement activity should help curb abuse short-term. Once reforms are enacted, the umbrella market will likely shrink as dodgy operators leave, leaving the quality providers to thrive. More contractors may end up on the agency payroll.

“Whilst the results are concerning, most agree that outsourced payroll has a place for small niche agencies who can then focus on recruiting. But inevitably, to prevent the longstanding issues,  agencies are likely to have debt transfer obligations to resolve payroll fraud. The result may be that some agencies run their own payroll or use properly audited umbrellas where every penny is scrutinised independently.

“In short, the umbrella mess has festered for years under a government that does not care about the flexible workforce. Now is the time for reform and accountability. Workers deserve better than more broken promises and inaction from the government. The umbrella industry needs intervention and regulation urgently, else a race to the bottom will ensue.”

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