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BEIS confirms rogue umbrellas will be covered by single enforcement body’s clampdown powers

Department for Business, Energy and Industrial Strategy moves to clarify that rogue umbrella firms will be in-scope of its soon-to-be-created single enforcement body, which will focus on protecting workers’ rights

The Department for Business, Energy and Industrial Strategy (BEIS) has clarified that its plans to create a single enforcement body (SEB) tasked with protecting workers from rogue employers and workplace malpractice will provide support for umbrella company contractors.

The Department published details on Tuesday 8 June 2021 about its plan to create a “powerful” watchdog that will see HM Revenue & Customs (HMRC) join forces with the Gangmasters and Labour Abuse Authority and the Employment Agency Standards Inspectorate (EASI) to clamp down on workers’ rights violations.

This has been repeatedly mooted by BEIS as one of a series of measures it plans to introduce in due course as part of a clampdown against non-compliant umbrella companies, as the number of IT contractors providing services through these entities has soared.

Umbrella companies are typically tasked with processing the payroll of contractors that are sourced by employment agencies on behalf of end-clients. As such, the responsibilities of umbrella firms include ensuring the correct amount of employment tax and national insurance contributions are deducted from the pay packets of the contractors on their books.

However, reports are rife of non-compliant umbrella companies abusing their role within the extended contractor-to-end-client supply chain by making unnecessary and unlawful deductions from contractors’ pay packets.

This, in turn, has resulted in repeated calls in recent years for umbrella companies to be subjected to statutory regulation to discourage firms from engaging in malpractice and to ensure timely enforcement action can be taken against those that do.

According to the government, the creation of the SEB will result in a collective improvement in the enforcement efforts of all three bodies when it comes to protecting workers’ rights, by making it easier for them to pool intelligence on agencies and employers dabbling in malpractice.

Examples of such malpractice include organisations that deny workers their allocated holiday pay and statutory sick pay, with the SEB set up up to provide victims of such practices with a “one-stop shop” to report these behaviours without having to take their cases to an employment tribunal.

The SEB will have powers to name and shame non-compliant employers for failing to pay workers what they are owed, and issue fines of up to £20,000 for each worker affected by these bad practices.

“This government has been absolutely clear that we will do whatever we can to protect and enhance workers’ rights,” said business minister Paul Scully, announcing the move.

“This new workers’ watchdog will help us crack down on any abuses of workers’ rights and take action against companies that turn a blind eye to abuses in their supply chains, while providing a one-stop shop for employees and businesses wanting to understand their rights and obligations.”

BEIS conducted a three-month consultation in 2019 about its plans to create the SEB, with the proposal winning the support of contracting stakeholders, who said it would go some way to help protect contractors from the harmful behaviours of non-compliant umbrella companies.

But concerns have been raised in response to BEIS’s statement about its plans, with Crawford Temple, CEO of Professional Passport, a company that provides compliance assessment services to umbrella firms, warning that the formation of the SEB could dampen down the enforcement powers of the three entities that make it up.

“While it is good news that the government is keen to step up its enforcement activity to protect the rights of workers and clamp down on bad practice in the labour market, I am concerned that a single enforcement body will not provide the answer,” said Temple.

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“In the short term, such a set-up could significantly dilute enforcement activity as each department works together to navigate their way through the issues. HMRC is already not acting on information it has quickly enough and involving the likes of EASI and the Gangmasters and Labour Abuse Authority could serve to slow down enforcement even more as these departments get up to speed.”

Concerns have also been aired about the lack of clarity from the government about when the SEB’s powers will come into force, and the role it will play in addressing malpractice among umbrella companies.

These points were raised in a joint statement by James Poyser, founder of anonymous contractor feedback site, and Rebecca Seeley Harris, a former senior policy adviser to HM Treasury’s Office of Tax Simplification.

Specifically, the pair aired concerns that there was “no mention specifically of the umbrella companies non-compliance issues” in the SEB announcement despite reports suggesting that malpractice within the umbrella sector is costing HMRC and contractors “billions in pounds each year” in lost tax and income, respectively. “We believe this is an oversight that needs to be addressed urgently,” the statement read.

In response to this specific point, a BEIS spokesperson told Computer Weekly in a statement: “This is simply wrong. Our published plans for a new single enforcement body clearly state that the new body will include umbrella companies in its remit and will have new powers to tackle non-compliance.”

Poyser and Seeley Harris submitted a draft policy to the Treasury in May 2021 outlining steps that needed to be taken to expedite the government’s progress on pushing through statutory regulation for umbrella companies.

Among the recommendations made in the paper is a call for the government to weigh up whether expanding the remit of EASI or creating an SEB would be the best way to set about regulating umbrella firms.

While the pair said they are “greatly encouraged” by the announcement of the SEB and BEIS’s intention to better co-ordinate the enforcement efforts of all three entities that make it up, there are some concerns about how quickly the SEB will come into being, but the department's confirmation that rogue umbrellas will be in-scope of the SEB's powers is welcome.  

“We are treating this as a win," said Seeley Harris, in a follow-up statement. "The crunch point will be whether the SEB is given enough funding to properly achieve its aims, this will not be considered until in the next Spending Review. The funding will be critical to the success of the SEB and whether it goes ahead.”

“It is concerning that the SEB will only be established through primary legislation when parliamentary time allows,” she continued. “This does not bode well for those currently enslaved in gangmaster and unethical supply chains, nor the contingent workforce caught up in the umbrella company scandal.”

The draft policy paper penned by Seeley Harris and Poyser for the Treasury has since been passed on to BEIS for consideration, she confirmed, and in the meantime the pair will continue to press the government to set a timetable for when umbrella regulation will be pushed through.

“We will continue to press the government to commit to legislate and ensure our policy recommendations, which stretch beyond curtailing abuses and also reflect modern working practices, are included,” continued Seeley Harris. “We will also continue to press for the regulation of umbrella companies themselves and/or licensing, but at least this step will mean there is an appropriate regulatory body.”

In a follow-up comment, the BEIS spokesperson added: “Protecting and enhancing workers’ rights through robust regulation – including for those employed by umbrella companies – is a priority for this government.”

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