Why the sun can still shine for the Umbrella Industry

Well, it has certainly been anything but a quiet time for the umbrella industry with the BBC money box investigation this week and the allegations that "Steve" had to threaten to take his FCSA (Freelance and Contractor Services Association) umbrella company to an employment tribunal in order to actually receive his holiday pay, and then the accompanying deluge of allegations that followed seemingly on a minute by minute basis for 3 days. I have to be honest it was painful to see after all this is an industry that I am involved in. Unfortunately, it was not surprising.

I don't need to comment much regarding the allegations of holiday pay being wrongly retained for profit purposes, as per the article I published on LinkedIn on 2nd December 2020 - Have I been paid my holiday pay? - The question that never goes away. This has been so widely known to exist in our industry it is embarrassing, and I am sorry it was and is about time it was fully exposed. This is in my opinion stealing contractors hard earnt money for work that they have completed and worst of all a complete abuse of trust from the very employers they believed were there to protect them and for me that is the biggest crime of all.

I know that the FCSA has been publicly hammered this week, and this has tarnished all their members, wrongly so it has to be said, but when you are the perceived "flag-bearer" or "gold standard" of compliance as they position themselves, then that's the reality you are to live with. As someone who carries no accreditation at all, we have seen enough public posts about not being compliant and "dodgy" if we don't carry the FCSA accreditation from FCSA board members, member umbrellas, and the FCSA themselves, so it is absolutely right that you answer the same questions and consequences you peddle to the industry in your rhetoric when highlighting non-compliance or umbrella employee abuses.

These allegations are serious and are not just going to go away and with the other allegations published this week (we will get to these), I believe that the leadership or lack of leadership shown, has actually been more damaging than the allegations themselves and has obliterated confidence from contractors when it is needed most with the off-payroll reform about to enter the private sector, and the many contractors using an umbrella company for the first time. Had I been an accredited member and I knew that I had never ever retained a penny of an employee's holiday pay, I would ensure that I shouted about this and most importantly proved it, it's not difficult. Instead, with the exception of a few comments made by CEO Phil Pluck, the silence has been deafening. The question is simple, have you ever retained and kept an employee's holiday pay? Yes or No? Can you Prove it? Simple. I will go one step further in my own opinion, holiday days can be lost, but never ever, ever should a penny of holiday pay be kept by an umbrella. The mere mention in a contract that holiday pay will be lost and kept by an umbrella is shameful and I would challenge any umbrella as to what the real motives are for having this in the contract in the first place. It breeds mistrust from the outset, and irrespective of the legal terminologies that will be thrown at me by solicitors, you will never win this argument with me.

I reference the email that was posted on LinkedIn regarding alleged holiday pay being split with an agency. Forget whether you carry any accreditation or not, any umbrella company doing this and any agency knowingly and wilfully accepting this, it is a bribe and this is a very serious crime. If this has become the practice in the industry then we are bang in trouble, bang in trouble.

The Labour Markets Intermediaries published their report into umbrella companies this week. 2 statistics stuck out immediately. The average rebate paid by umbrellas to agencies is ￡15 and the average margin charged by an Umbrella is between ￡20-￡25. That leaves between ￡5 and ￡10 gross profit after the rebate has been paid. As umbrella companies, we have salaries to pay (with commission for sales staff in most cases), office rents (although I appreciate this may not be the case currently due to COVID), insurance costs, systems costs, bank charges, legal fees, marketing costs, and plenty more. I am sorry but ￡5 definitely doesn't enable these costs to be paid and even ￡10 is cutting things pretty close, so it does beg the question, where is the money coming from to pay these rebates? I don't care whether you payroll 100 or 10,000 the maths just doesn't add up if rebates of this average are being paid on a per-person basis. Most umbrellas would be out of business!

I was also seriously alarmed when snippets of the code of conduct for the FCSA were published and I specifically want to focus on the following:- "For the avoidance of doubt, the FCSA (and it’s assessors) review does not constitute any form of independent audit of the business in question and should not be held out to be, or be taken, as such." - In October 2019 Orca Pay Group paid and commenced to undertake and ultimately obtain the FCSA accreditation, but due to the fact that no audit was ever going to be carried out we retracted our application (I would like to point out that we were refunded our monies without delay and extremely quickly). With only 4 working days left before the off-payroll reform enters the private sector and HMRC now having unprecedented powers to pursue anyone in the supply chain for unpaid tax liabilities, with obligations to The Criminal Finance Act 2017 for those supply chains with intermediaries needing to be met, shit is about to get real for so many agencies and businesses.

The mythical mindset which seems to have been adopted that badges or accreditations make you immune to falling foul to the above is so dangerous to business in general that it actually scares me just how unknowingly blind businesses are to the ramifications of this. Indeed Phil Pluck himself openly confirmed to Contractor UK in an article published on 25th March that in his first year in his role as CEO that he has expelled members that have breached their "codes or charter". This clearly shows that it does not matter if you carry an accreditation or not, abuse still happens. It also highlights the risks of annual audits. You may perceive that everything is compliant on the face of things, but what are you seeing for the remainder of the year? Can you with 100% confidence confirm that you know intricately where every penny is being paid to by your umbrella partner? Not just from an umbrella employee standpoint, but also from an HMRC liability standpoint? If not then you are exposed to risk, what happens if tax avoidance has been occurring? Maybe it could be a mini umbrella model being operated? Just because everything appears in order at the outset, doesn't mean this is the case. No code of conduct or charter or opinion is going to matter if HMRC coming calling trust me! What are you doing to protect your business?

The time of self-accreditation and reliance on these badges is over. The stakes for both contractors and businesses are too high. It hasn't worked, it doesn't work and the exposure to abuse has if anything got worse.

Now is the time for transparent and forensic auditing on a payroll by payroll basis. Technology and systems allow us to do this and only by doing this do we ensure that our umbrella employees are treated fairly, and we protect our agencies and end clients by proving compliance is being met on a payroll by payroll basis. Forensic on everything, NIC's, VAT, PAYE, Holiday Payments, App Levy, Pension payments, margins, complete avoidance of doubt that anything untoward is occurring. It is the only way to guarantee your supply chain is secure.

We stand on the precipice of being able to make a collective change as an industry, change that is needed but most importantly change for the better, until such time that BEIS and the EAIS pull their finger out and implement the much-needed regulation. Change takes courage and it takes a collective. Has confidence been rocked, yes it has, but as is always the case, you have to hit the bottom before you can start climbing for the top, but climb we always can? There are some wonderful umbrella companies in this industry, but we all now have an individual responsibility to make the changes that will serve to enhance our collective industry reputation.

Recruitment Agencies will be as important a driver in this change as umbrellas, I spoke to a contractor yesterday called Mike. He has been a contractor for 33 years and due to a blanket policy decision was required to use an umbrella company for the first time. Mike told me that he felt for the first time in his professional career that agencies have stopped caring about "us contract folk", and whilst Mike is one person, it only serves to highlight that he still feels like this.

Is it not time that we all realised that these contractors are everything to our respective industries. If they all stopped contracting none of us would have a business, so isn't it time to cherish them for the priceless assets they are and to finally earn their trust once more, not to mention the immense role that they are going to play in helping our economy bounce back.

Yes it's been a horrific week, nothing more horrific than Phil Pluck commenting "has this been done in the interests of the contractor", and a legal and compliance expert who did not want to be named "Perhaps it’s an attempt to disrupt the market for someone’s or some party’s commercial benefit." - To suggest that this has been an orchestrated attack, timed to coincide with the off-payroll reform, is in my opinion, to deflect away from the very real reality of what has been widely known to exist for years, that there have and are holiday pay abuses. Unfortunately, these comments sum it up and highlight why it's time to protect our contractors, our agencies and our end clients like our lives depend on it and why change is needed so badly.

I have no doubts there will be more to come following the BBC money box investigation, but for those of us that genuinely care about what happens to our industry we can start being better from today!!