Umbrella companies have been around for many years. They basically combine the job insecurity of the self-employed with the high taxes of an employee under PAYE – but they have been ‘popular’ because they allow the hirer to pay a worker in a way that helps them to avoid the responsibility of being an employer.
Since April 2020, a huge number of people have been forced to use Umbrella companies by hirers of contractors (particularly the big banks) as a reaction to the ‘IR35 in the Private Sector’ rules that were expected to become law in April 2020 (but became law in April 2021).
It seems to me that if an employee under PAYE was told he was going to still be paid under deduction of income tax and National Insurance but would lose all of his redundancy rights, pension contributions, holiday pay and sick pay above SSP (i.e. be an Umbrella worker), there would be an outcry about the position he was being forced into. Yet thousands of freelance contractors have been forced into that very position by their hirers – particularly the big banks – because those hirers haven’t been that interested in helping the people they are hiring (even though it would be legal to do so). Instead, because it is easier to apply one simple, catch-all policy, and thus avoid taking any risk or responsibility, many hirers have been forcing freelance contractors to stop using their own companies and to become Umbrella company workers.
This rise in the use of Umbrella companies is a direct consequence of Government policy and is creating a situation where thousands of workers are now neither self-employed nor true employees – which is a major step backwards for the rights of British workers.
In a post-Brexit, post-Covid economy, having a highly-skilled, having a skilled mobile workforce that undertakes short-term contracts, often far from home, would be vital – but there is now little incentive for a worker to leave a secure job with employment rights and benefits in order to be a freelancer, if they will only end up being paid via an Umbrella company. I believe that the consequences and the morality of the new IR35 rules need to be reviewed.