In response to the coronavirus pandemic, the government unveiled an unprecedented support system for employees – the Coronavirus Job Retention Scheme (CJRS). While workers and organisations have generally welcomed the scheme, there are still major questions regarding the treatment of umbrella workers.
As things stand, over 650,000 contractors and freelancers who engage with umbrella companies are not able to benefit from furloughed leave, meaning the CJRS is not available to them during these difficult times. This article, written by Umbrella Company UK, explains why umbrella companies are not able to furlough their employees currently.
Answers are needed now
As things stand, the government has not made it clear if they will reimburse umbrella companies for accrued Holiday Pay and the Apprenticeship Levy – should they decide to furlough their employees. Therefore, if umbrella companies were to furlough their clients now, they run a significant risk of not being paid back what they pay to their clients.
There is often a misconception that umbrella companies charge a fortune for their service. Providing they are compliant – this is certainly not the case. Typically, an umbrella company charges a small weekly margin for their service. Therefore, they cannot afford to start offering their clients furlough pay until the government reassures them that they will be fully reimbursed. If an umbrella were to start distributing furlough pay before government clarification, they would be taking an immense risk and one that could see their business fail before the summer has truly arrived.
The FCSA is demanding answers from the government regarding the CJRS. In a recent article, the organisation states: “…what the government doesn’t seem to realise is that they are failing the contractor workforce by delaying its response – how are umbrella employers and agencies expected to calculate furlough pay for their employees without correct guidance? It’s worth noting that this is the position of both FCSA members and indeed companies who are not.”
Umbrella companies are not the enemy
Umbrella companies exist to help contractors and freelancers get paid on time while making the correct tax and National Insurance Contributions (NICs) to HMRC. Therefore, it seems fair that workers who use umbrella companies are entitled to benefit from the CJRS – just like permanent employees who pay the same tax and NICs.
There is often confusion about the way payments are displayed on an umbrella company payslip. If you work with an umbrella, your payments will be shown as a combination of National Minimum Wage (NMW) and a discretionary bonus. This way, umbrella companies can provide continuity of employment.
Continuity of employment is one of the most attractive reasons temporary workers decide to use umbrella companies in the first place. It allows contractors and freelancers to take on multiple roles with different rates, and still gain Employee Benefits (that can only be earnt after a specific period on a business’s payroll).
Providing the government clarifies the issues surrounding Holiday Pay and the Apprenticeship Levy, there is absolutely no reason why compliant umbrella companies wouldn’t want to furlough their employees.
In a recent LinkedIn post, Dave Chaplin, a well-known voice in the contracting industry and founder of IR35 Shield, set out to dispel “some of the myths” surrounding the CJRS and umbrella companies. He says that umbrella companies “do want to furlough if they can”, but if they do go ahead and furlough clients, they “will need to process all payments, with no money coming in to pay their own staff to do it”. Dave also reminded his followers that “margins are very thin for umbrellas” and that sadly, “no magic money trees exist.”
Ciaran Woodcock, Head of Marketing at Field Sales at Umbrella Company UK, said: “We understand that a number of our clients are currently undergoing financial hardship. We want to reassure these clients that we are very keen for the government to clarify the situation as soon as possible.”
“Let me make one thing clear – we want to be able to offer furloughed leave to our clients and we have set the wheels in motion. We’ve already asked our clients if they believe they are entitled to furloughed leave and if they have said yes, we have asked them to complete a short online form. With the information we have already gathered, we have everything we need to furlough these workers. Now, all we need is the government to announce they’ll be supporting umbrella companies and will reimburse Holiday Pay and the Apprenticeship Levy. As soon as this is made clear, we will furlough all of our clients who are entitled to it.”
“We need umbrella users to understand that without further clarification, umbrella companies simply cannot afford to offer furloughed leave. Failure to be reimbursed for Holiday Pay and the Apprenticeship Levy would result in every umbrella company facing imminent insolvency. It’s a risk that we simply cannot afford to take.”
The FCSA was quick to defend the current position that employment businesses find themselves in. They state that without answers from the government, “…companies who operate umbrellas and employment businesses will be exposing themselves to considerable financial risk which could potentially lead to business failure.”
Five of the UK’s leading professional bodies have rallied together
On the 8th April 2020, it was announced that APSCo, FCSA, Professional Passport, REC and TEAM had joined forces to demand immediate clarification from the government. United as one voice, they have urged the government to clear up confusion surrounding the CJRS for agency and umbrella workers. Unfortunately, the government has failed to respond so far.
Hopefully, over the next couple of days, the government addresses the issues that have bombarded them from professional bodies, payroll providers, and temporary workers. Without clarification, hundreds of thousands of workers will miss out on the Coronavirus Job Retention Scheme. Surely the government will not allow this to happen – as it appears to go against what the Coronavirus Job Retention Scheme set out to accomplish.
Contractor Services
- Tax-efficient life cover - via your limited company. Save up to 50%
- Tide business bank account - £40 joining bonus! - find out more
- Need a new accountant? - compare 30+ specialist firms
- Switch between umbrella and limited - flexible solution from Nixon Williams for contractors affected by the Off-Payroll changes.
Follow Us!