Rather than pay workers in a standard PAYE manner there has been a mass move to pay workers via umbrella companies, which charge their ‘employees’ for their services. They also charge the worker both employers’ and employees’ national insurance contributions and they have been alleged to add strange inexplicable charges. Not only are construction workers losing out – typically by up to £120 a week – but so is the exchequer.
Phil Whitehurst, GMB national officer for construction, explained: “An umbrella company is a company that acts as an employer to agency workers like construction and other workers. So instead of their being two parties the contractor and the worker, umbrella arrangements usually involve four parties – the worker, the contractor, the agency and the umbrella company. On construction sites there will be a main contractor, and often multiple layers of subcontractors, employment agencies but the worker’s employment contract is with the umbrella company, not the agency. Normally the agency will agree a job and pay rate with a contractor and then contact the worker about the job. The umbrella company receives the payment from the contractor for the work done by the worker. It processes the payment, deducting PAYE income tax, employee’s and employer’s National Insurance contributions and the umbrella company’s fee.
The residual sum is then paid to the worker as net pay. Often workers are officially paid at the national minimum wage, despite having negotiated a pay rate far in excess of this figure. Pay is then partially re-boosted through scams using expenses, performance related pay and other methods. Payslips are often so complex that workers tell us that they do not understand how their pay is being calculated. Many umbrella companies also withhold an amount of money that should be paid to the worker at a later date in the form of holiday pay but is not paid. The benefit to construction companies and agencies of using umbrella companies is that of reducing tax and national insurance liabilities. These liabilities and other costs, including the cost of the employer’s NI contributions and the umbrella company fee for providing payroll services, are passed on to the construction workers. This is an abuse.
We have construction companies negating their responsibilities of direct employment by using parasitic umbrella companies and forcing workers into accepting the terms offered or they quite simply don’t get the work. These spurious tax avoidance contracts leave staff with no employment or financial stability. They are very often put on zero hours contracts with holiday and other payments rolled up into one composite rate of pay. Workers are then forced by the very nature of the contracts to pay both the employees and the employers National Insurance contributions. This can cost them up to £120 per week. These parasitic companies then have the brass neck to charge between £20-£30 admin fees per week for their troubles.”
Shadow exchequer secretary Shabana Mahmood MP said that Labour is committed to introducing deeming into construction. This would mean that workers would be considered employees unless they met strict criteria to prove they were self-employed. She also said that Labour was committed to cracking down on the use of expenses by umbrella companies, which would make such schemes less attractive.