Government criticised for banning furloughing umbrella companies from charging a margin

The government is under fire for extending the Coronavirus Job Retention Scheme without a way to let umbrella companies charge to run the payroll for their furloughed contractors.

Boris Johnson and Rishi Sunak have each received letters about the CJRS extension not amending the scheme’s small print, which prohibits umbrellas from charging their margin.

Written by Orca Pay Group, the letters remind the prime minister and chancellor that to furlough compliantly, umbrellas face paying both Holiday Pay and the Apprenticeship Levy.

'Protect us and many other brollies'

“We’ve got to pay the additional 12.07% for holiday pay and the 0.5% levy but with no way to charge a margin, just to support each worker,” says Orca’s chief executive Robert Sharp.

“For each worker we furlough, we run a loss. Even if the CJRS let us charge just 50% of the margin, it would protect us and many other brollies. And at no cost to the government.”

Another umbrella company confirmed, saying at no point since the furlough scheme began in March have umbrellas had the legal right to apply the fee “that keeps their business going.”

'Left high and dry'

“Due to the original CJRS guidance telling us umbrellas, ‘You  must pay the full amount you are claiming for your employee’s wages to your employee,’ we’re left high and dry.”

The company continued: “Any of us who did initially furlough had to [fork out for setting up the scheme because] most software is not built to process umbrella payroll in this manner.

“Then we had to run it without being able to get paid anything for processing the pay, alongside having to pay and cover holiday pay accrual. Larger brollies pay the levy too.”

'Huge disconnect'

In its letters to Mr Johnson and Mr Sunak, Orca has gone for “full transparency” – detailing to the penny how much supporting its staff with furlough has cost between March to October.

“I have not had a response yet, and tomorrow shall be seven days,” Mr Sharp said on Monday in a statement to ContractorUK.

“Unfortunately, there is a huge disconnect between the government's understanding of how an umbrella company works ad how an umbrella company works in reality, hence in my letters I attached a detailed breakdown of what that last seven-and-a-half months of furlough has cost us. Hopefully, it will open their eyes”.

'Administration charge'

He added that both the PM and chancellor could safeguard scores of umbrella companies, and at no extra cost to the exchequer, if they amend the CJRS guidance paragraph that states:

“Employers cannot enter into any transaction with the worker which reduces the wages below the amount claimed.

“This includes any administration charge, fees or other costs in connection with the employment.

“Where an employee had authorised their employer to make deductions from their salary, these deductions can continue while the employee is furloughed provided that these deductions are not administration charges, fees or other costs in connection with the employment.”

'Real financial difficulties'

The umbrella company which was speaking on condition of anonymity said its rivals  “stopped the scheme” when the government said Employer NI and AL needed to be paid.

“It simply wasn’t financially feasible even though the umbrellas really tried to support their workers as best they could.,” the company said, adding last night:

“Unless brollies have been able to get support from clients to help cover costs in excess of the CJRS grants, there’s no way for brollies to charge the margin that keeps their business going which is why most umbrellas have had to stop the CJRS. And it is likely to be the case that those who continued to make payments with contractors on furlough are now potentially facing real financial difficulties.”

The boss of an umbrella firm serving blue-collar workers echoed: “We cannot and should not be subject to the same furlough scheme guidance as a ‘normal’ employers. Because we simply are not. We need to be able to charge a margin or at least a reduced margin for the services that actually allow us to make our revenues as a business.”