The Freelancer and Contractor Services Association (FCSA) has hit back at misleading remarks about umbrella companies made by Gail Cartmail, the Assistant General Secretary of the Unite union, who has called for the businesses to be outlawed.

The FCSA and APSCo have noted a significant rise in the number of contracting professionals switching to umbrella companies after public sector IR35 reforms last April. Most chose this method of engagement to continue working flexibly rather than being forced onto payroll or being taxed as an employee despite receiving no employment benefits.

Unite, however, refers to a “huge” increase in the number of workers “forced” into umbrella company employment in recent years and claims that they are forced to pay both employer and employee NICs as well as income tax. Many umbrella companies, the union says, roll holiday pay into the rate, so that their workers receive a small additional sum in their weekly income but are then left unpaid during holiday periods.

Ms Cartmail accused the Government of “washing its hands” of workers trapped in the “misery” of umbrella employment while slamming umbrella companies for exploiting thousands of workers. She urged the Government to outlaw them.

Responding, FCSA CEO Julia Kermode said: “Like Unite, FCSA, as the representative body for Umbrella employers, is committed to protecting the workforce from exploitation so I am disappointed to hear Unite’s assistant general secretary Gail Cartmail attacking them with such vitriol as well as the Government who we know are taking numerous steps to clamp down on poor practice.”

Umbrella firms, she added, are not there to exploit workers but to enable them to enjoy maximum work choice and flexibility over several short-term assignments while retaining employment status. Compliant firms employ contractors, she said, thereby ensuring their entitlement to all of the 84 statutory employment rights and benefits.

Moreover, compliant umbrella employers do not deduct employer NICs from their contractors’ pay, nor do they deduct, as Unite claimed, their margin or any employers’ pensions contributions from that income. All are considered overhead costs which are taken out of assignment rates, which are not to be confused with wages. Confusion may arise when insufficient clarity exists concerning the distinction between assignment rates and gross pay rates, and the FCSA continues to oppose such lack of transparency and drive up standards.

As for holiday pay, the FCSA favours giving employees a choice between having it rolled up or accruing it so that it can be drawn down during a break between assignments. Some contractors prefer the former, others the latter.

Kermode concluded by offering to meet Ms Cartmail to dispel some of the myths around umbrella companies.

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