Calls to outlaw umbrella firms in the NHS

The news that the UK’s largest union, Unite, has called on the NHS to outlaw umbrella companies operating throughout the organisation has caused some controversy.

In April this year, the government introduced new rules which effectively outlawed agency workers operating in the public sector from being paid on a non-PAYE basis. The changes affect all grades in the NHS including paramedics, porters, nurses and doctors.

Because of this decision, some agencies operating within the NHS have begun to force workers to be paid via umbrella company contracts. If a worker is employed via an umbrella company, they lose 46 pence in the pound of eligible earnings, through national insurance (workers must pay employer’s national insurance contributions) and income tax.

Unite national officer for health, Colenzo Jarrett-Thorpe, said: “Umbrella companies are simply parasites feasting off workers wages. Although they are not technically illegal, they are certainly immoral.

“Unite will be now targeting individual NHS trusts that allow umbrella companies to be used, not only will we ensure they ban their use in future but we will also demand they pay back the money our members have lost, in being paid in this way.”

The Freelancer & Contractor Services Association (FCSA), the UK’s largest independent trade association which represents umbrella companies, has strongly contested this.

Julia Kermode, chief executive of FCSA, said: “Like Unite, FCSA is committed to protecting the workforce from exploitation so I am disappointed to hear Unite’s national officer for health Colenzo Jarrett-Thorpe tarring all umbrella companies with the same brush and calling for the NHS to ban the use of umbrella firms.  I have been talking to NHS Improvement about the important role of compliant umbrella firms in the supply chain, and I am meeting up with their agency team in the next two weeks to discuss how we can work together in the best interest of contractors and freelancers. 

“As a result of the IR35 reforms which took effect in the public sector in April, we are indeed seeing many newcomers entering the umbrella market with no track record so due diligence is essential to minimise risk.  We are particularly concerned about the increasing proliferation of offshore loans and disguised remuneration schemes that seek to reduce contractors’ taxable pay via contrived means.  These schemes put individuals at significant personal financial risk as HMRC will pursue them for the unpaid tax and NICs, plus penalties and interest.” 

The new Criminal Finance Act coming into force on 30th September will also pose an additional challenge for agencies to manage, as they risk being accused of not preventing tax evasion if they put contractors in touch with umbrella schemes. This highlights the importance of agencies choosing compliant umbrella firms with whom to partner with.

Julia concluded: “FCSA accredited members adhere to a strict code of compliance and we are committed to ridding the industry of its cowboys as well as promoting umbrella employment as a positive choice for the hirer and the worker.”