Crystal Umbrella

David Cameron’s coalition government is taking a hard line on those umbrella companies who flout the rules. Just like the previous administration, the current government are taking a zero tolerance stance with umbrella companies who operate schemes with the sole aim of minimising tax and NIC payments while topping up the take home pay of contractors with expenses.

For some time, many umbrella companies have actually been flouting the national minimum wage legislation by paying a lower rate than the national minimum wage specification of £5.80 per hour. As previously mentioned this low rate of pay would then be topped up with expense payments. Of course, the benefit for the umbrella companies is that they save on their employers’ NIC contributions. However, while at first glance it might appear that there is no adverse effect for the contractor as the take home pay is the same either way; on closer inspection the contractor is actually missing out on vital NICs which count towards future pension and state benefit entitlement.

The government have now taken steps to counteract this, with new legislation coming into force on 1^st January 2011. From this date these umbrella companies will have to pay their contractors the full national minimum wage.

The umbrella companies who have been taking advantage of the current loophole will have no choice but to adhere to the new rules. While their current practice is not illegal, it is viewed by many as unethical. Such schemes have created a two-tier umbrella sector with companies like Crystal Umbrella providing a service which exceeds the standards set for the industry while others operate schemes designed only to save themselves money without benefiting the contractors who use their service.

Crystal Umbrella welcome the proposed changes to NMW regulations as of January 2011.

Obviously, any increase in NMW is a good thing for the temporary labour market.  Not only will it go a long way in protecting the vulnerable sectors of the temporary labour market, but it will also allow them to receive full entitlement to state benefits (based on National Insurance Contributions).

For contractors, freelancers and locums currently earning NMW greater clarity is given around the claiming of travel (to temporary workplace) and subsistence expenses as they will not count as pay for NMW purposes. This area has been a concern and one that Crystal has campaigned for a long time.

Crystal Umbrella see this as a step in the right direction and a way of protecting those that need it, whilst providing an environment suitable for providing a level playing field within the contracting and freelance market

Contractors working in the public sector are already starting to feel the squeeze as spending cuts get underway. IT firms who supply the public sector have been advised they will need to cut their fees by 20%. This request was made at a meeting of all nineteen IT suppliers to the government. At present these firms charge the government in the region of £16 billion.

Francis Maude, cabinet officer minister, confirmed that this “marks the start of the process to renegotiate key government contracts” regarding “everything” that these businesses “do for the government” in a bid to cut costs.

The suppliers involve include such technology giants as BT, IBM, Fujitsu, HP and Serco. According to IT analysts TechMarketView the government will probably choose to curtail the extent or length of contracts rather than seek to cancel them altogether. The government’s CIO, John Suffolk, will be the man responsible for the contract renegotiations.

Mr Maude commented: “Given the really difficult economic climate we now face, we have to do everything we can to deliver better value for money for taxpayers and that involves taking some tough decisions. I am laying down the challenge to major government suppliers to ask them what they can do to take costs out of contracts. Some of this will come out of margins, but we will also invite ideas on how we can structure things differently to reduce complexity and cost.”

Crystal Umbrella is dedicated to providing a professional service to all of our customers and clients. This is why, back in 2008, we launched our Recognition scheme to publicly praise and reward our staff who go that extra mile for our customers and client base. The aim, as always, was to ensure that those using our services can trust in the knowledge and expertise which exists within Crystal and that, irrespective of their reason for contacting us, individuals can expect to receive the highest standards of customer care.

The Recognition scheme has actually succeeded in refocussing the entire business, serving as a reminder to all staff that customer service and satisfaction is at the very heart of the service we provide. Overall the scheme has been a resounding success and we would like to take this opportunity to congratulate our 2009 winners: Sam Cayton, Suzanne Coombes and Christine Smith. In fact, Sam Cayton and his colleagues in Information Technologies deserve further congratulations as they were named Crystal Umbrella’s Team of the Year 2009.

Crystal Umbrella continues to promote excellence. We are dedicated to developing our staff and our business. We recognise and appreciate the skills and talents of each and every one of our employees and the opportunity to reward their dedication to the work that we do. Our Recognition scheme has now run its course but our commitment to customer service and staff development continues with our newly-launched scheme which aims to tap into the skills and knowledge of our front line staff to generate fresh ideas for the business as a whole.

There seems to be a direct link between the recent demand for IT staff and the recovery of the banking industry. This is the belief of the Association of Recruitment Consultants (ARC) who believe that many companies are looking to upgrade their IT systems as the UK leaves recession. This means that skilled IT contractors are back in demand.

This increase in job opportunities was actually evident in the most recent Report on Jobs from the Recruitment and Employment Confederation, which showed that employment for both contract and permanent staff increased in February.

Chairman of ARC, Adrian Marlowe, said: “As far as IT is concerned, our members have also experienced an increase in IT employment requirements. At the moment, there is definitely an increase in work of that nature.”

He continued: “I think that having laid low for 18 months or so, those organisations that have larger IT requirements are taking the view that they need to upgrade their systems, hence the IT requirement in that regard.”

However, the REC have warned that there will need to be “radical reform” to ensure that the ongoing cuts in public spending do not have a negative effect on recruitment opportunities. Their Report on Jobs did show the sharpest increase in the number of vacancies between January and February through the past 30 months, however the report noted a slowdown in billing for contractors during that period.

Chief executive of REC, Kevin Green, believes that contractor opportunities in the public sector could be set to decrease: “Looking ahead, there are indications that recruitment in the public sector could drop off fast. A new approach to public sector resourcing is now critical and will have a direct impact on the wider employment outlook. We question whether the public sector has the right capability in place to lead the necessary transformation and put in place staffing structures that will keep costs down while improving public services.”

A Freedom of Information Act request has provided details of illegal workers who have been employed by government agencies since 2006. The data shows that ten foreign workers were actually employed by the UK Border Agency, the Home Office department responsible for vetting immigrants who come into the country. The Home Office itself also employed two illegal workers at their headquarters in Whitehall. In total, the figures showed that hundreds of illegal workers were employed at 54 NHS trusts and 34 local authorities across the country.

Of the twelve people employed by the Home Office, one was from Ghana and the other eleven were Nigerian. The ten workers at the UK Border Agency were cleaners while one person was employed as a security guard at Whitehall and the other illegal worker there held a chef position.

These twelve people have since been subject to investigation and action has been taken. Eight have been deported and three are currently detained pending appeal. Only one of the twelve has been granted permission to remain in the UK.

As this data was made public, Shadow Home Secretary, Chris Grayling stated: “This is an absolute scandal. The Government has taken tough action against private companies over the employment of illegal immigrants, yet on this evidence it is quite clear the public sector has taken on bogus workers and escaped any form of censure.”

He concluded: “We have ministers constantly telling us they have got to grips with the chaos in our immigration system, yet the Home Office itself has been employing illegal workers. It is completely unacceptable and we need an urgent explanation from ministers.”

These figures will be a further blow to Home Secretary Alan Johnson who has already publicly condemned the government for its handling of immigration. Only last year Attorney Baroness Scotland was found to have employed a Tongan housekeeper who was not eligible to work in this country. She was subsequently fined £5000.

In total, 349 illegal immigrants were employed in public sector positions according to the figures released. The NHS employed four foreign nationals as doctors and 13 as nurses in their hospitals. Six people were employed in secondary schools as teachers and ten people were employed as care and social workers.

The Home Office responded to these figures via a spokesman who said: “The 12 illegal workers identified since 2006 were all sub-contractors, none of them were directly employed by the Home Office. It was our checks and the strict regime we operate on illegal working in the UK that brought these cases to light. We are doing more than ever before to crack down on illegal working, with raids taking place up and down the country every week, and thousands of rule breakers deported.”

These figures show that the employment of illegal workers continues to be a problem across all sectors. Crystal Umbrella recognises its responsibility to protect agencies and clients alike from the potential pitfalls. As such, we are investing heavily in UK Border Agency compliant registrations in order to have the most effective procedures and technologies in place as a pre-emptive measure.

For those contractors who want to retain their autonomy while achieving a reduction in their tax liability, an umbrella company could be just what they are looking for. Umbrellas are ideal for those contractors who would rather not work as a sole trader or set up their own limited company. Just think, you could wave goodbye to all that administration that would burden you if you were operating your own limited company such as expenses, timesheets, expenses, contracts, filing and tax calculations. By working through an umbrella you effectively become its employee while choosing for yourself which contracts to accept, what rates of pay to accept and the terms and conditions for your work.

Of course, these are not the only benefits of working through an umbrella company. Your umbrella will work with you to reduce your tax liability and can also offer you further cover such as public Liability and Employer cover in the event of any legal action based on services rendered. Many umbrellas can also offer extra benefits which are tailored to each contractor’s personal requirements. Such benefits include pension plans and health cover.

Crystal Umbrella makes sure its customers are aware of the guidelines that it is proud to work within. All umbrella companies have a responsibility to work within the HMRC guidelines. Crystal Umbrella makes sure that it also adheres to the HMRC benchmark scale rate for expense allowances. This means that our customers are at a much reduced risk of being subject to an HMRC investigation based on an artificially high and unrealistic dispensation.

The Association of Employment Management Companies (AEMC) has posted a blog which praises the UK’s flexible workforce and calls for wider recognition of the worth of the 1.4 million freelance workers in the UK.

By calling for a “fresh approach to freelancing”, AEMC are asking the government to acknowledge the contribution that freelancers make to the UK economy. AEMC believe that policymakers have yet to acknowledge the benefits of a flexible workforce or the range of skills and experience that this workforce has to offer. The AEMC are calling for the regulatory burden experienced by contractors to be abolished.

This year will bring the next general election and AEMC will be lobbying for political parties to acknowledge the freelancing workforce and to promote a fairer taxation framework for contractors. Also on their agenda is the abolition of the often-costly tendering process which often sees contractors unable to compete with bigger businesses.

The blog continued: “The next government must encourage freelancing as a flexible, innovative and entrepreneurial way of working that enables business to perform more cost effectively, especially when recovering from recession.”

This call for fairer treatment of freelancers comes at a time when temporary contracts have risen faster than any other month in two and a half years according to the Report on Jobs published by the Recruitment and Employment Confederation and KPMG. This is mirrored by Crystal Umbrella’s own experience which saw a sharp increase in temporary placement throughout December which has continued into January.

Congratulations to IT contractor Ian Boylett, who, after submitting the recent Crystal Umbrella Customer Survey, was the lucky winner picked out of the hat this week.
Ian takes home £250 worth of vouchers, and Crystal Umbrella would like to take this opportunity to thank everyone who completed to survey. The results are an integral part of our strategy to offer superior services to both contractor and agency.
Once again, congratulations Ian.

IT consultancy, Dragonfly Consultancy Ltd, has been defeated in its IR35 appeal at the High Court. The appeal had been funded by the Professional Contractors Group (PCG).
It was back in 2008 that Wiltshire-based Dragonfly Consultancy ltd lost its IR35 case before the Special Commissioners. This left Jon Bessell, co-owner of the company with a tax and NIC bill of £99,000. This decision has now been supported by the High Court.
In January last year, Special Commissioner Charles Hellier had stated that as Mr Bessell was an integral part of his client AA’s business and should therefore be treated as an employee. Mr Bessell had provided his services to AA for three years through agency, DPP International Ltd. He would have had limited rights of substitution but AA had declared that they would have expected to vet or choose any replacement prior to them reporting for work.
Mr Andrew Stafford QC appealed the Special Commissioner’s initial ruling on four grounds:
1)    The right of substitution in notional contracts was wrongly concluded as being inconsistent with employment. Instead his conclusion should have stated that the notional contracts would have been prevented from being full contracts of service due to the provisions which they contained.
2)     That the commissioner incorrectly asserted that the rights of control the AA had over Mr Bessell’s work could have allowed the creation of a contract of service
3)    The incorrect conclusion that the intentions of AA and Mr Bessell were irrelevant.
4)    The service commissioner did not take into account that while a person may be self-employed this does not mean that he is in business for himself. There is a category in-between.
At the High Court, Mr Justice Henderson answered each point in turn.
1)    He considered it unreasonable that the AA would have agreed to unqualified rights of substitution and that the existing rights of substitution were on a par with a relationship of employment.
2)    He concluded that Mr Bessell’s work was subject to control and supervision. He stated that the level of control exercised by the AA was for the Special Commissioner to analyse and he had found the balance tipped towards employment.
3)    He concluded that there had been no error in law on the part of the Special Commissioner.
4)    Mr Stafford, QC had entered the special definition of ‘worker’ pertaining to an intermediate category of people who are neither employed nor self-employed and that the IR35 legislation only applies to [notional] employees. He again reiterated that he ruled with the Special Commissioner that no other categories of worker needed to be considered as Mr Bessell’s position fell “on the employment side of the line”.
On this note the appeal was dismissed, leaving Mr Bessell to pay the £99,000 tax and NIC bill.