Workers need to be very careful when looking at this kind of arrangement, which is often designed to minimise an employer’s liabilities to workers and to HMRC – for example to pay employer's national insurance.
Construction workers union Unite reports that despite pay rates being advertised at a much higher level, the worker is often only paid the National Minimum Wage and that earnings are then boosted by mechanisms such as performance related pay.
Gains for the worker can prove illusory. For example, workers can lose out on:
- Holiday pay;
- Pension contributions;
- Access to earnings-related benefits, such as Statutory Sick Pay or Statutory Maternity Pay; and
- Statutory rights, such as the right to claim unfair dismissal or a redundancy payment.
Payslips can be so complicated that it becomes very difficult to understand the deductions that are being made from your pay.
Hours are often irregular, as this kind of arrangement often goes hand-in-hand with zero hours contracting.
In April 2016, HMRC clamped down on the tax rules for claiming tax relief on travel and subsistence expenses where workers provide personal services through an intermediary such as an umbrella company. This eliminated a tax loophole that was being exploited by some umbrella companies.