A Message from our M.D. Helen Broughton

I’d like to pose a question: Could you survive on less than the Minimum Wage – particularly if your regular income is so much more?

That’s the grim reality right now for thousands of contractors working through umbrella companies in the UK. Honest, hard-working people with bills to pay and families to feed.

I must stress from the outset that I do understand the Chancellor, Rishi Sunak, when he says that the government cannot help every business, nor every household. I appreciate that it’s simply not possible to do given the circumstances. But umbrella companies and their contractors are significant and substantial contributors to the national economy and, quite frankly, they’ve been left behind and badly let down by the government’s Coronavirus Job Retention Scheme (CJRS).

‘We desperately want to do more’

Along with SMEs, umbrella company contractors are, in the government’s own words, ‘the backbone of the British economy’. These workers build our roads, trains and aeroplanes. They provide professional services to a multitude of vital businesses in sectors such as banking, insurance, education, healthcare, computing, science, security, and many more. They work hard, they’re flexible, and they pay their dues. So why, unlike their public sector counterparts, are they being failed when at their most vulnerable?

As we all come to terms with the financial fallout from COVID-19 (Coronavirus), it’s important to highlight the disparity between what umbrella workers engaged in the public sector receive when compared to those in the private sector.

Many are still getting paid 100% of their usual earnings due to the government’s policy of continuing to fund public sector bodies. The government are insistent that they pay their workers as normal throughout this crisis.

I commend this stipulation but I must shine a light on the unfairness when viewed through the eyes of a private sector umbrella worker.

While some are being paid 80% of their usual monthly salary, many are only able to receive 80% of the UK’s National Minimum Wage.

Why?

Well, it boils down to how big your appetite as a company is for risk and whether you’re willing to gamble the future of your business – and the livelihood of your workforce – on a mere interpretation of a brand new scheme.

As a responsible business, we are simply not prepared to do that.

That said, I totally understand the concern and frustration of many of our contractors. We desperately want to do more for them but, at the moment, our hands are tied. And while we’ve repeatedly called for clarity on this, none has been forthcoming, so we’re left to do what we can.

‘Thousands have fallen through the gaps’

Umbrella companies are a legitimate, established way of working for many businesses and individuals who seek and provide flexible work and temporary contracts. However, owing to a general lack of understanding about how these employment businesses work, they’re often portrayed as the villains of the piece. So, let me try and clear a few things up.

Umbrella companies are the overarching employer for over 625,000 contract workers in the UK and, as such, they convey all the statutory rights that being employed has to offer: sick pay, maternity pay, paternity pay, holiday pay, etc. Some even offer additional employee benefits such as health insurance. By contrast, a self-employed person would have no such access to employment rights.

It works like this. An umbrella company invoices the agency or end client for the work completed by the contract worker. When payment is received, the costs of employment (namely, Employer’s NI, Apprenticeship Levy, and a margin to cover the administration of the payment) are deducted. The remaining amount is ‘gross pay’ and is subject to tax and National Insurance at the same rate as any other employed person – you can find out more, here.

The only income an umbrella company receives is their margin, which for most contractors is a nominal sum. That margin is deducted from the contract rate that the worker receives for their services. The margin is then used to help:
  • With the cost of running the umbrella company business, covering all overheads.
  • Pay and train the people employed to process the payments.
  • Provide insurance and professional indemnity for all its workers.
  • Pay statutory sick pay, which is not reclaimable from HMRC.
  • Pay NMW to contractors who have performed their work but failed to receive monies from their agency or end client. As their employer, the umbrella company accepts and settles this liability.
Umbrella workers’ employment contracts are constructed in such a way to ensure that the business of an umbrella company is viable and that the employment rights of the individual are protected. So, legitimate business expenses can be claimed and reimbursed, and there is no excessive liability for wages where the invoiced agency or end client is unable to pay. These are the very same reasons that contracts are used by businesses everywhere.

Our employment contracts are split between basic ‘contractual’ pay – i.e. NMW – and discretionary bonus or commission. The latter exists simply to limit the liability in case of non-payment for work completed (for context, a self-employed person would receive £0 in this scenario) and to facilitate the payment of legitimate business expenses. I can also confirm that it takes more than a few margins to pay just one person’s NMW for a week – let alone 2,500 people over a period of a number of months.

Sadly, this contractual arrangement has meant that thousands employed through umbrella companies have fallen through the gaps in relation to the government’s CJRS because the scheme specifically disallows the discretionary element of usual pay.

From confusion, to fury, to sheer desperation, the messages we receive from our contractors – on a daily basis – are absolutely heart-breaking. “My life is falling apart due to COVID”, said one contractor, whose loss of contract has coincided with a family member contracting the virus. But it’s the inequality between their regular wage and the percentage of NMW they’re now receiving that most of our contractors are finding hardest to bear.

One gentleman wrote to us to cite the “disadvantage” at which 80% of NMW places him. His day rate ordinarily is £350; the difference is gargantuan – it’s simply not enough. Another of our loyal and longstanding contractors said it was “totally unacceptable”. He thanked us for what we’d been able to do for him but expressed the likelihood that he would be leaving us as a direct result of what’s going on. Meanwhile, many others, who according to the CJRS are not eligible for furlough, have been contacting our teams in their droves asking for statutory sick pay or, frankly, anything to keep their heads above water until this crisis subsides.

These people are entitled to feel this way, their anger is wholly justified.

‘Umbrella employees are the real victims’

Let me be completely clear, we WANT to pay our umbrella employees 80% of their usual or taxable pay but we fear that by doing so, the government will not reimburse that discretionary element. To commit to this without confirmation from the government would simply be suicidal for our business.

Please also note that by making furlough payments, we:
  • Receive ZERO income from those payments, while still having bills, employees and insurances to pay.
  • Pay the Apprentice Levy – out of our own pocket.
  • Are liable for holiday pay on the furlough payments we make, as is the interpretation of some legal advisors.
Indeed, some have suggested we exercise our discretion and not pay furlough at all. But we are willing to administer furlough despite the considerable costs we will incur. The way we see it, we are all in this together and we want to play our part.

Our umbrella employees are the real victims in this, though. They are the ones who, instead of receiving 80% of their usual wage, are faced with having to try to make ends meet on just 80% of the NMW. They are the ones who pay tax and National Insurance on all they earn and yet cannot access the help they should be entitled to.

The chancellor talks about people getting out what they put in. Well, I would ask him, what about these people? They work hard, they harbour the risk, and they contribute their fair share. But when they need help, really need help, it feels like they have been hung out to dry.

The irony here is that these people will be expected to pick up where they left off – providing the flexible workforce that gets our nation’s economy back up and running once this lockdown period is over. They will be on the front line of the great British comeback. I trust no-one will forget their sacrifice and I hope our calls today are heeded.

In the meantime, I have written a letter to our local, MP, Mark Menzies, to express my concerns and appeal for clarity from the government as well as permission to pay our umbrella workers 80% of their taxable or usual pay – up to the £2,500 cap whilst they are on furlough.

We will update you on our progress in due course.

For now, stay safe and take care,

Helen Broughton MBE DL, Danbro Group Managing Director

Share This Post