My agency says that if I want work, I must work through an 'umbrella company'. What does this mean?

There has been a huge growth in the use of so called 'umbrella companies' in recent years across many sectors, including construction, supply teaching and logistics. The basic aim of this kind of arrangement for the employer is to shift responsibility for national insurance and employee rights from the organisation onto the worker. This kind of arrangement is often associated with the use of zero hour contracts and the underpayment of wages. Workers are often encouraged to believe that their take-home pay will be higher under this kind of arrangement, but any gains are usually illusory.

Under this kind of arrangement, the "umbrella company" is slotted in between you, as the worker, and the organisation you are doing the work for. The umbrella company enters into the contract with the organisation to provide the work (your services) and employs 'you' to do it. As the employer, the umbrella company deducts tax and both employee and employer national insurance contributions from your pay packet. A fee is typically charged, which construction union UCATT says is often as much as £30 a week. Payslips are often so complex that it becomes very difficult for you to understand the deductions that are being made from your pay.

If you are concerned about these sorts of working arrangements, your best defence is to join a trade union. UCATT has commissioned a report to raise awareness of this issue, the Umbrella Company Con-Trick, which you can find on their website.

TaxAid is a charity that helps people on low incomes with their tax affairs. It runs a helpline: 0345 120 3779.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.

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