Umbrellas set to face UK-wide regulation

Umbrella companies look set to face UK-wide regulation as the Government responds to recommendations in the Taylor Review of modern working practises.

Umbrellas – which can provide payroll services to contractors employed through recruitment agencies– are now set to have in-stone governance from the Employment Agency Standards Inspectorate (EASI) and will also have to deal with new guidelines regards pay.

The FCSA added that the change is an overwhelmingly positive one. “[It’s] a really positive development assuming that it will be fit for purpose,” they said in a statement. The FCSA will also advise the Government on the regulation – especially around some of the more complex cases.

The changes will allow the Inspectorate to investigate complaints involving an umbrella – including where workers, who had gained work via recruitment agencies, had not received adequate pay.

But the Inspectorate will not unduly scrutinise the entire umbrella market with business officials telling ContractorUK that whilst “the Taylor Review concluded higher skilled, higher paid sectors are well served by umbrella companies, their role is more questionable for lower skilled, lower paid roles.”

However, this won’t curtail EASI’s regulatory power. The Government has said: “The EASI will cover all umbrellas -- not just those which employ workers whose roles are defined as less-skilled, so as to “protect decent employers from unfair competition.”

EASI will not work alone either. The Department for Business, Energy and Industrial Strategy added that they will work with HMRC and the GLAA to “tackle detrimental arrangements”.

And whilst the FCSA are positive about the changes, Julia Kermode, Chief Executive of the freelancing and contract services body, said there needs to be a proper timeframe for this to be implemented.

She previously told ContractorUK: “There needs to be a sufficient timeframe for implementation to enable end-clients to properly plan their workforce requirements, taking into account this change”

Yet, the changes to umbrella are not standalone. They come as part of a raft of changes that the Government announced in December. Many seek to bolster the power of agencies to enforce labour market standards and improve workers’ rights.

This will include scrapping the loophole known as the Swedish derogation which allows companies to pay agency workers less than full-time staff.

What was the Swedish Derogation model?

If an umbrella company providing agency workers to an agency can demonstrate that certain circumstances have been met in their relationship with the agency worker, then the Swedish Derogation model can apply and the agency becomes exempt from the basic pay regulation.