Party manifestos: The umbrella company regulation waiting game continues -- but with a new, big and unsettling caveat

In the contractor industry it never rains but it pours and the last couple of weeks has felt like a potential flood alert, as we all waited for manifesto pledges affecting UK contracting’s modes and methods of working, writes Lucy Smith, managing director of Clarity Umbrella.

But it’s emerged as a bit of a damp squib in the area I’m most interested in -- umbrella companies -- with a commitment to do something we all thought was dead in the water; the Single Enforcement Body.

Return of the Single Enforcement Body (aka Worker Protection Enforcement Authority)

Labour used its proper name, saying a win for them on July 4th would lead them to create a “Single Enforcement Body” to ensure “employment rights are upheld.” The Lib Dem manifesto a few days earlier pledged to unify three labour market agencies into one organisation (which is widely acknowledged to be the whole efficiency point of the SEB), but they’re calling it the Worker Protection Enforcement Authority.

Either way, ‘SEB’ or ‘WPEA’ is not contained in the Tory party’s 2024 election manifesto – and nor was the latter party’s already underway plans to regulate the umbrella industry. Arguably, if those plans are executed properly, the need for a new organisation disappears.

But annoyingly, there’s no timetable for any of three plans to regulate what’s been called the 'Wild West.'

Timeline of umbrella company regulation

It’s all rather frustrating because it feels like we have spent a lifetime since the initial discussions about umbrella company regulation first started.

In November 2021, there was the “call for regulation”, with many umbrella companies giving their response on what the industry needed.

Then in June 2023 (yes, that’s not a misprint ‘June 2023’ – so a year-and-a-half later), came the consultation and further round table events, where umbrella companies, recruiters and accreditation bodies had their say. 

After the government issued a 58-page document with a title that sounded like they’re doing something (‘Tackling Non-Compliance in the Umbrella Company Market’), many companies like mine set to work in answering the 52 specific questions posed. We then had to sit back with our bated breath.

Next came Spring Budget 2024, and once again it was suggested more information was coming our way, so we employed further patience and waited in anticipation for a promised “update” on April 18th 2024.

For all the industry effort that was put in, it was soul-destroying that on April 18th we were handed just three paragraphs about umbrella regulation, effectively telling us ‘go wait some more, but we’re leaning towards x, y, z.’

The waiting game

For those umbrella companies like us with nothing to hide, all this has just been an endless waiting game. We and other brollies have no qualms about being tested on compliance, and yet here we are approaching July 2024, with no such tests but plenty of qualms about having no such tests! We are -- in material, tangible terms, no further forward.

On 23rd May, I attended a meeting with Margaret Beels OBE, Director of Labour Market Enforcement, in the hope of some enlightenment and, frankly, to be told it’s in progress, and that we are further forward.

When it came to the current landscape and risks, the LME team indicated there are issues in the agricultural, care, construction and supply teaching spaces, and within those came their “umbrella company” concerns.

Beels and the LME team showed support for something happening, including a SEB

I had one of those reassuring sanity-check moments where you utter to yourself ‘So it’s not just me then,’ when Beels let on she was aware that there has been little movement on  umbrella company regulation since 2021. Maybe it “was a good idea for something to happen” on regulating umbrellas, Beels said, however it seems like the “government had paused for consideration.”

In the room, there was a concern about worker exploitation, and it was said by a few LME officials that certain sectors would benefit from a Single Enforcement Body being established.

Interestingly, those officials spoke of the SEB monitoring the “employment issues” around umbrella companies.

A mini-Pandora’s Box

However, it became very clear that there are two issues which don’t seem to align well for the government.

1. Is the aim to look at regulating the umbrella market, and ensure that workers are looked after and understand what it means to be working via a brolly?

Or:

2. Is umbrella company regulations about preventing tax avoidance, and putting money back into the Treasury coffers?

We know for sure that employment law and tax law have never sat comfortably together, and the above ‘either-or’ question was a mini-Pandora’s Box in the meeting which nobody dared to get near enough to answer.

Almost steering us into clearer waters (without directly committing to ‘1’ or ‘2’), Beels raised the issue of how the umbrella market might be abusing workers today – ranging from holding onto holiday pay and statutory benefits, to workers not fully understanding umbrella company working.

What Key Information Documents taught us

Of course, back on April 6th 2020, the government introduced Key Information Document requirements. Since then, the legal emphasis has been placed on contractors’ recruitment agencies to ensure that each worker receives a KID prior to signing any contractual arrangements.

In theory, this should help explain the deductions, but the room highlighted that in reality this has rarely happened -- and if it did, then they were probably generic documents that were being issued, bearing little or no relevance to the rate being offered.

Without me here naming names, I can tell you that it was pointed out that the requirements of KIDs appear to have been placed on the wrong party. The argument made was that it’s not the role of agencies to do the explaining. Rather, it’s the umbrella company that the employee would engage with.

The future (could be more of the past)

Whether this gives food for thought remains to be seen. But it seems to beg the question; ‘If agencies were the wrong contractual party to put in the frame last time round, when it came to KIDs, are they the right contractual party to put in the frame this time round, when it comes to regulating umbrellas?’

Of course, if the umbrella regulatory issue actually comes down to tax avoidance -- as opposed to actual compliance, then this is a whole other, thornier topic. We asked Beels to consider where the complicity lay, when working with an avoidance scheme, and how best this could be clamped down on

And we’ve gone full circle -- back to the same issue of regulation and supporting those umbrella companies which try to operate in an honest and transparent manner. I suppose we should be slightly heartened that two of the UK’s political parties vying for your vote at general election 2024 mention that in their manifestos; albeit very, very, indirectly by nodding to the need for a SEB (aka WPEA).

But the result for us compliant umbrella companies and their users -- contractors -- is ‘as you were.’

Finally, the big, new and unsettling caveat now a general election is almost here...

We must all continue to sit and wait, again. And with the election coming and stranger things happening in the world than manifesto pledges being ‘forgotten,’ we must now begin our extended wait in the new, unsettling knowledge that a change of government could propel the whole umbrella regulation issue back to square one. Given her clear disappointment at the drip-drip of activity to regulate umbrellas so far, that’s surely a scenario Beels won’t permit.