Government must regulate rogue umbrella companies, says REC

The Government must impose regulations as a matter or urgency to halt the growth of unethical umbrella companies which cheat the taxman and abuse staff, according to a leading industry body.

Julia Kermode has called for action to halt the growth of unethical umbrella companies

The Recruitment & Employment Confederation (REC), the professional body for the UK recruitment industry, has called on HMRC to set up a dedicated hotline for workers to report bad practice by umbrella companies.

This forms one part of the organisation’s four-point plan to tackle abuses by umbrella companies and ensure that recruitment agencies which use them do all they can to protect the rights of temporary workers.

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The organisation's concerns are shared by Julia Kermode, the founder of iwork.co.uk, which protects the UK’s independent workforce, who warned that financial incentives and kickbacks from umbrellas to recruitment agencies have become rife in recent years.

Ms Kermode told The Yorkshire Post: "These bribes have reached truly shocking levels, and it is only the dodgy firms that can afford the highest incentives, meaning a spiral of decline with recruitment agencies being financially rewarded for recommending dubious firms to their workers. It’s totally abhorrent as workers risk ending up with a huge tax bill from HMRC in later years because the recommended umbrella was dodgy."

The Loan Charge All Party Parliamentary Group (APPG) published a report which provided evidence of significant malpractice in the supply chain by many umbrella companies and recruitment agencies. Some of this has driven the operation and mis-selling of tax avoidance schemes which has caused the supply chain to be dubbed a ‘Wild West’ by many professionals, the report concluded.

The APPG report uncovered evidence of recruitment agencies demanding kickbacks or incentives from umbrella companies for being added to a preferred supplier list or recommended to clients. These included new kitchens and holidays for recruitment agency directors, the report concluded.

Neil Carberry, chief executive of the REC, said: “Recruiters want a robust and fair supply chain, where workers’ rights and pay are protected and all parties’ responsibilities are clear.

"Bad-faith umbrella companies have been allowed to thrive alongside compliant businesses for too long. An HMRC-run hotline for reporting bad practice by umbrellas would make it easier for workers to report abuses, and help government bodies to coordinate their efforts to stamp out bad practice. It is essential that the government regulates umbrella companies as a matter of urgency to protect both workers and recruitment agencies.

Mr Carberry added: “Of course, employment businesses also have a responsibility to make sure they operate with fairness and transparency, and for our part, the REC will continue to ensure our members do this.

"Workers should always know who they are employed by, and we worked with government on the introduction of the Key Information Document (KID) to ensure everyone has this information. We urge all recruiters to always conduct rigorous due diligence on their supply chains, and I have written to all our members with new guidance to help them do so – this is more important than ever right now.”

The REC has been calling for umbrella companies to be regulated for many years.

A spokesman said: "In the absence of that regulation, the recruitment body is announcing a set of measures aimed at protecting workers and ensuring compliance among recruitment businesses."

Apart from calling for HMRC to set up a hotline dedicated to reporting bad practice by umbrella companies, the REC would like to see a new legal definition of umbrella companies which government should use as a starting point for regulation.

It is also providing new guidance for all REC member businesses to follow to avoid working with "bad-faith, non-compliant umbrellas".

The REC said it was also committed to re-affirming and clarifying the REC’s Code of Professional Conduct and members’ obligations. The REC has pledged to act against members who are have found to have breached the code.

In a statement, the REC said: "A key part of tackling bad practice by umbrella companies is ensuring that where recruitment businesses use them, they are acting with complete transparency and making sure they conduct full checks on the umbrellas they work with.

"To help with this, the REC has published and sent new guidance to all its members on how to avoid working with bad-faith umbrella companies, giving them more clarity about what to look for to ensure that workers’ rights and pay are protected.

"Alongside this guidance, Neil Carberry has written directly to all REC member recruitment businesses, urging them to conduct rigorous due diligence on their supply chains.

"The letter also re-affirms REC members’ duties under the Code of Professional Practice, which requires them to comply with the law and treat their agency workers with transparency and honesty. The REC has a robust complaints prodecure to deal with any breaches of the code, including relating to umbrella companies, and the letter also reiterates that the REC will take appropriate action if a member is found to be in breach.

The statement added: "While employment businesses and employment agencies are fully regulated, payroll providers like umbrella companies are not. One significant barrier to regulating umbrellas is that there is currently no legal definition for an umbrella company – meaning they can avoid any responsibilities that would be associated with regulation.

"To solve this, the REC has proposed that government adopts a definition as set out in the Agency Worker Regulations, which could be used as a starting point for regulation of umbrella companies. This would create a level playing field between umbrellas and employment agencies, which are fully regulated, and help ensure that umbrellas can be held to account if they breach their legal obligations."

A Government spokesperson said: “Protecting and enhancing workers’ rights through robust regulation – including for those employed by umbrella companies – is a priority for this government.

“We have already introduced requirements to improve the information provided to new agency workers about their contractual terms and pay rates, and have committed to establishing a single enforcement body to further protect vulnerable workers.”

The spokesman stressed there was already a commitment to regulate the sector.

"And while we don’t have a helpline specifically for umbrellas, we do have helplines for any tax issues or questions people have."

Workers who need advice on their employment rights can get help from ACAS on this link: https://www.gov.uk/pay-and-work-rights

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