So long as construction companies want to use freelance subcontractors umbrella companies will be needed. That is according to Graham Jenner, director of umbrella firm NoPalaver, who decided to put his head above the parapet after yesterday’s demonstration in Westminster and Edinburgh by construction workers campaigning against umbrella companies.
However, he acknowledges that more transparency on costs is needed from umbrella companies to ease concerns about workers.
Mr Jenner says that where an umbrella company has transparent costs it should offer freelancers in the construction sector the most attractive, tax efficient option for those workers to continue to work as freelancers.
The introduction of the Onshore Employment Intermediaries legislation by HM Revenues & Customs in April to tackle what it saw as false self-employment has led to a rise in the use of umbrella companies in the construction industry. That legislation pushed all construction sector contractors away from being paid as self-employed through a third party and into umbrella companies, as this was one of the few routes by which they could retain their freelance status.
According to NoPalaver, there is little alternative to umbrella companies for construction contractors. Construction companies are unwilling to hire short term contractors as full-time employees and the high administration costs that are necessary to operate through a limited company ensure that this model is also not suitable for many contractors.
Mr Jennings acknowledges that some construction workers have seen a fall in net income since the new rules were adopted, but he insists that the structure of umbrella companies is not to blame. It is the fault of construction companies refusing to cover the extra cost of employers’ national insurance contributions (NICs) when the new rules came into force, he says, so umbrella companies have been forced to deduct this from the amount they have received for that worker.
“Some contractors are receiving smaller pay packets as a result of these rules and are directing their anger towards umbrella companies,” said Mr Jenner.
“The pressure on umbrella companies from the unions is misguided as many have forgotten or not realised the role that construction companies have played in this problem. They have pushed the burden of meeting national insurance costs onto the shoulders of the workers – hitting their take home pay.
“Unions mistakenly believe workers are being unfairly treated by umbrella companies so are putting pressure on them – but they should be asking the same questions of the construction companies.
“This is not an issue that is set to go away, so all parties need to reach a consensus about how to best move forward.”