Channel 4 dispatches

Channel 4 Dispatches – Umbrella Companies

20 January 2015

On Channel 4 Dispatches 19th January 2015 reporter Morland Sanders looked at lower paid workers in the UK. The episode was titled “Low Pay Britain”. It is available on catch-up for the next month.

The programme highlighted a number of workers that were not being paid the National Minimum Wage. It appears a loophole is possible if the worker is classed as an apprentice for the first year of their employment even when they are over 18. In this scenario the National Minimum Wage of £6.50 does not apply and instead the worker can be paid just £2.73 per hour. The workers interviewed did not believe they were ever apprentices and stated they did not receive special training that would be expected for an apprentice. The programme does raise the question what is the difference between an apprentice and an employee? It also highlighted a number being paid through a salary sacrifice scheme where an employee can agree to give up part of their cash pay in return for non-cash benefits. This can reduce the amounts of PAYE and NIC’s that are payable.

At we provide an illustration to all new enquiries to illustrate the 3 options available to contractors working in the UK i.e. working through their own limited company, working through our umbrella company or being paid PAYE by their agency. The contractor is then free to choose their preferred option.

The programme then went on to show a sales pitch of an umbrella company trying to win referrals off the undercover reporter posing as the boss of a recruitment agency.

The pitch was awful and not representative of the industry as a whole. This is not the way compliant umbrella companies in the UK would present their business model. In reality contractors travel the length and breadth of the UK to meet a short term need for their services. In doing so they incur large costs in travel, overnight stays and higher food and drink costs while working away from home. When they accept a new assignment they do so based on a rate that pays them for their time working and also the time and costs in travelling to and from their assignment (or in cases where the distance is excessive the cost of temporary accommodation – normally a hotel or bed and breakfast). It is therefore only right that the expenses element is treated as tax free and should in no way be seen as some sort of fancy tax avoidance scheme. Contractors do not have the luxury of always being based near to their place of work and to tax them on the recovery of the additional expenses they incur would prejudice them to the extent that many have said they would not be able to continue working on their current assignments or future assignments if these rules were changed. There is a large difference between permanent employees and temporary workers and they therefore meet the conditions of working at a temporary location.

Compliant umbrella companies work hard to protect the rights of their workers and in particular ensuring they receive at least the national minimum wage. Umbrella Companies are also responsible with the agency and end client to ensure umbrella company workers receive at least a comparable wage to permanent employees working at the same site. There are numerous benefits of working through an umbrella company where the contractor benefits from statutory employment right, guaranteed minimum hours and support between assignments.

All in all it was an excellent programme but it is a shame that all umbrella companies will probably be tarred with the same brush when the industry is actually working hard with HMRC to ensure that a compliant service can be supplied.

The umbrella company featured also appeared to struggle to explain the difference between a fee and the margin deducted implying that it was deducted from the contractor’s gross wage which is not the case.