Question to the HM Treasury:

To ask the Chancellor of the Exchequer, if he will take steps to prohibit the practice of recruitment agencies asking for incentives to recommend contractors to an umbrella company.

Like all employers, umbrella companies are responsible for paying employer National Insurance Contributions (NICs) where they are due. Employers cannot, by law, deduct employer NICs from an employee's gross pay. The payment of employer NICs out of the umbrella company’s fee may be shown on the same payslip as deductions, such as Income Tax, from the employee’s gross pay, meaning that it can look as if an individual is paying the employer NICs, when this is not actually the case.

The Government improved transparency for agency workers by introducing the Key Information Document from 6 April 2020. This sets out a range of pay-related facts, including the minimum rate of pay an agency worker can expect, who pays them, how often they are paid, and if there are any deductions or fees taken from their pay. Any differences between the rate of pay given to the umbrella company by the employment business and the sum given to the agency worker (after fees and deductions) must be accounted for and explained.

When set up and operated correctly, umbrella companies comply with tax and NICs legislation. Umbrella company employees who believe that an umbrella company is not complying with its tax or NICs obligations can report it to HM Revenue and Customs: https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc.

Commercial and loyalty incentive schemes may be a legitimate business-to-business interaction, between an agency and umbrella company, and they are not within the scope of the agency regulations enforced by the Employment Agency Standards (EAS) Inspectorate.

Protecting and enhancing workers’ rights through robust regulation, including for those employed by umbrella companies is a priority for the Government. The Government’s plans for a new single enforcement body will include umbrella companies in its remit, and will have new powers to tackle non-compliance.