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Why the umbrella industry should take its lead from the financial services sector part 1

Updated: Mar 6, 2023

After the 2008 global financial crisis which affected economies around the world, the Bank of England and the UK government introduced many changes in order to protect people’s livelihoods.


These included institutions such as The Financial Conduct Authority, The Prudential Regulation Authority, The Financial Ombudsman Service, and The Financial Services Compensation Scheme, which were established to offer consumers levels of protection that were not in place previously.


However, one financial sector - umbrella companies - has been left behind.

Here, in the first of two parts, we look at what more could be done.


The changing world of work

How we work has changed dramatically over the last 40 years.

Today, more of us than ever before are freelancing or contracting. According to recent figures, over 4.2 million people are classed as self-employed – that’s 13% of the working population.


These engineers, nurses, doctors, designers, IT developers, renewable energy specialists and automotive workers collectively contribute over £150 billion to the UK economy every year.


Many of these contractors rely on umbrella companies to act as a safe and reliable employer on their behalf, deducting the correct amount of income tax and National Insurance contributions, and to provide continuity of employment.


However, despite the reams of legislation pertaining to other financial institutions – banks, mortgage providers, pension companies etc – governments over the last 20 years have consistently failed to address the most immediate challenges faced by the umbrella company sector: non-compliance, transparency and enforcement.


The last couple of years have seen several events which have led us to believe that the government’s commitment to a fair and compliant umbrella sector is not quite what it seems.

Firstly, it cancelled plans to introduce a Single Enforcement Body which, in its own words, would have allowed ‘a more joined up approach to regulation and enforcement’.

It has also failed to respond to its own call for evidence into the umbrella sector that closed in 2021.


Robust enforcement is needed

All this leaves the umbrella sector exposed and vulnerable, and reveals the government’s lack of appetite to root out bad practices which tarnish the industry’s reputation.


Many within the industry, including our own Crawford Temple, CEO and founder of Professional Passport, have called not only for regulation, but the need for a robust enforcement regime which can support umbrella companies operating in the UK today.


However, enforcement costs money and somebody must pay. Adding over 1,200 payment intermediary companies to the 30,000 recruitment companies that the Employment Agencies Standards Inspectorate regulates would only add to its administrative burden with its already limited resources, and would still fail to deliver on the principle of regulation and its perceived benefits.


The industry wants and needs an accountable body in order to enforce provider compliance in the marketplace, and to protect contractors and recruiters from unscrupulous providers who offer arrangements that could lead into HMRC investigations, as well as significant financial losses.


Is financial services the solution?

The financial services sector could be the solution to these problems, building on a similar model to the already-established networks which already operate effectively.


These networks each take responsibility for their own members’ compliance, which is enforced by the risk of significant fines and penalties if they do not assess and uphold strong levels of compliance within their own network.


This risk also applies to the maintenance of their own systems, increasing their responsibility and accountability.


A system like this would result in a much smaller number of individually-controlled compliance networks, which would be directly responsible for their own members’ compliance, including all the inherent and associated risks.


It would seem to be a logical first step in the regulation of the industry in order to deal with the numerous companies that rely on compliance accreditations, which circumvent both current legislation and debt transfer liabilities – an untenable and unwelcome state of affairs.

Many trustworthy umbrella companies already rely on legitimate compliance accreditations to demonstrate their compliance, and indeed ‘compliance’ has become the hot topic on many people’s agenda at the moment.


Therefore, it is surely time to implement a new framework for the umbrella sector, adapting the rules from the already-existing financial services sector, in order to demonstrate to both contractors and recruiters that the industry takes its role seriously and is willing to work hard to enhance its reputation.


Look out for part two

Keep an eye on our LinkedIn page for the follow up to this blog in our two-part series.

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