TUC calls for ban on use of umbrella companies to employ agency workers

Photograph: Stefan Rousseau/PA

The Trades Union Congress (TUC) has called for the government to ban the use of umbrella companies to employ agency workers, amid fears their use could as coronavirus pandemic restrictions are removed.

Umbrella companies, used by recruitment agencies and businesses to employ workers ranging from cleaners to high-paid contractors, have come under increased scrutiny as evidence has mounted of abuses of workers’ rights as well as fraud.

Frances O’Grady, the TUC’s general secretary, said: “These scandalous workplace practices have no place in modern Britain. But our inadequate regulations let dodgy umbrella companies off the hook – allowing them to act with impunity.”

Umbrella companies often sit between workers and recruitment agencies, who then supply staff to the companies who need labour. Workers are employed by the umbrella, which makes a profit through fees and sharing payroll costs – but also in some cases by withholding holiday pay. Some umbrellas also create fraudulent mini-umbrella companies, which add another fake supplier in order to illegally benefit from tax breaks.

Suppliers to outsourcing companies Serco and G4S removed some of their payroll companies from their complex supply chains after a Guardian investigation prompted concerns over possible tax dodging at the heart of the government’s pandemic response.

The TUC, which represents 5.5 million workers, estimated that as many as half of all agency workers are employed through umbrella companies, based on industry responses to research it commissioned from the Low Incomes Tax Reform Group. The number of workers employed via umbrellas could rise because of tax changes and the increasing use of agency workers to fill staff shortages as pandemic restrictions ease.

The union body called for a legal obligation for employment agencies to directly employ staff they place with other companies, as well as making all companies in supply chains liable for upholding workers’ rights.

“Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries,” O’Grady said. “Enough is enough. It’s time for ministers to ban umbrella companies, without delay.”