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Tackling non-compliance in the supply chain

Crawford Temple, CEO - Professional Passport

Matt Warman MP was tasked by our outgoing Prime Minister to lead a review into how the government can best support a thriving future UK labour market.  The announcement came in the same week that the government chose to omit the employment bill from the Queen’s speech.  We are also still waiting to hear the findings of the Call for Evidence into the umbrella sector and we also know that the Director of Labour Market Enforcement Strategy has appealed for information to give her a steer on the labour market enforcement strategy for next year focusing on compliance and enforcement.

And, let’s cast our minds back to 2017 when Matthew Taylor, in his role as Chief Executive of the Royal Society of Arts, was tasked with carrying out the Taylor Review into modern working practices and the government published its response in the Good Work Plan in 2018 addressing some of the recommendations.   Underlying the review and the plan was an ambition that “all work should be fair and decent” and that “the government will act to ensure that the interests of employees on traditional contractors, the self-employed and those people working the in the ‘gig’ economy are all properly protected.”

Four years later we heard the government’s response in a 32-page document that said “the benefits of creating a new framework for employment status are currently outweighed by the risk associated with legislative reform.  Whilst such reform could help bring clarity in the long term, it might create cost and uncertainty for business in the short term, at a time when they are focusing on recovering from the pandemic”.  Was it worth the wait?

It was in the same review that the Single Enforcement Body (SEB) was first proposed, mooting the prioritisation of enforcement resources and using collegiate working to tackle non-compliance in the labour market.  The can has been firmly kicked down the road.

If the government wants to make a real difference, then now is the time to implement some of the changes that are needed and have already been identified over the last five years.  We need changes rather than more lip service but there are reasons to be cheerful from an umbrella perspective.

Creating the Single Enforcement Body
The absence of the Employment Bill from the Queen’s speech gives policymakers pause to get the creation of the Single Enforcement Body right.  It is going to be a big and complex undertaking that shouldn’t be rushed and has the potential to be extremely disruptive and distracting just at a time when the constituent parts of the new body are perhaps needed most by the UK’s workforce.

Any merger can be disruptive and ensuring that HMRC, the Gangmasters and Labour Abuse Authority (GLAA) and Employment Agencies Standard Inspectorate (EASI), each with their own ingrained cultures, behaviours and specific areas of focus and responsibility can blend together is a delicate process.  The government must get it right and with Margaret Beels as the new Director of Labour Market Enforcement, we must glean some confidence.

Labour Market Enforcement
Margaret Beels brings with her a GLAA background.  The GLAA is widely respected for being robust and effective in helping to stamp out bad practices and with umbrella companies already operating in GLAA licensed sectors, the GLAA has had some success in flushing out non-compliant umbrellas.

Margaret Beels should therefore have a good understanding of how umbrella companies work and be aware of the issues and scale of the issues that the sector is facing and her expertise should help the three enforcement bodies to focus tightly on what they can do within the current framework.   She could also use her considerable influence to encourage HMRC to use its powers of enforcement to act more effectively.

HMRC has the power to tackle at least 50% of the compliance issues in the umbrella sector and those issues would not fall under the remit of the SEB anyway.  If you strip away the problems that are agency-led, which EASI could take more concerted action to resolve, and strip out all the tax and NIC issues, which HMRC has the tools to deal with, the only glaring problem left is the one that has most recently hit the headlines – holiday pay.  For far too long, some umbrella companies have been consciously withholding holiday pay from umbrella workers but the latest Pimlico Plumbers ruling means that this can now no longer happen and workers can claim what is rightfully owed to them.

Tackling non-compliance
What can and should be done to put an end to non-compliance that is still prominent throughout the supply chain?

HMRC could stop non-compliant operators from getting a foothold in the marketplace by scrutinising new employer applications before registering them or making more use of their ability to require a PAYE security deposit in the form of cash or a guarantee in the form of a performance bond issued by a financial institution.

To the extent that bad apples get through, there could be a refocus on PAYE compliance and enforcement at employer level.  Umbrella companies are employers and under tax law, they have an obligation to operate PAYE properly.  If they are paying workers through disguised remuneration schemes, they will not be doing this for the benefit of their workers and simply have their own interests in mind.

HMRC has access to huge volumes of data through the employer’s payroll and agencies’ monthly intermediary reporting.  This provides significant intelligence to help identify potential disguised remuneration schemes quickly.  Yet, HMRC is still slow to act and still pursues the worker who has been unwittingly duped into a scheme rather than the perpetrator of the scheme.

HMRC’s resources may have been constrained in recent years but this should be no excuse for not putting effective enforcement at the heart of its operations as part of its core remit to manage the tax system efficiently.  Let’s hope that the latest drive by government to introduce a Single Enforcement Body will give HMRC even more tools to get its job done properly.

Enforcement and education
Enforcement will always be key to protecting workers and educating and arming workers with the knowledge to protect themselves against poor treatment or exploitation is vital.  Working with experts and stakeholders throughout the supply chain, the government is getting better at informing workers about umbrella working so that people are becoming more aware and better equipped to make informed choices about umbrella working.  But, there is still a long way to go to prevent workers from falling foul of dodgy schemes.

However, today there is far greater transparency around umbrellas, how they work, how they should work and their place in the labour market and we are seeing an increasing number of manoeuvres, initiatives and solutions mooted that should work to fill the gaps that exist in enforcement and education.

These include:

  • Industry-led think tanks, experts and associations are taking a collegiate approach to sharing information and ideas that will help to raise the standards in the sector
  • Technology such as AI introduced to help read and audit umbrella payslips
  • Awareness by the whole supply chain to use a compliant umbrella and the risks that come with not doing so
  • Reforms at Companies House that seek to clamp down on the misuse of corporate entities

Ensuring that “all work should be fair and decent” was never going to be an easy task and was always going to present many challenges to policymakers but maybe, just maybe, things are starting to align which means that there are better days ahead for the umbrella sector and by default, umbrella workers.

Workers should not be exploited and compliant providers deserve to see a level playing field.  I would like to send out a strong message to non-compliant providers that their days are numbered – SEB or no SEB.

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