Umbrella firms have come under fire more than ever recently and given the current climate and a raft of media exposure around ethics, exploitation and non-compliance, along with calls to legislate and regulate, it has never been more important that everyone in the supply chain works together to develop good working practices. We know that there are cases of bad practice amongst a minority of businesses which have grabbed the headlines but there are also a large number of highly compliant organisations working ethically and correctly to provide a high-level quality service for clients and contractors.
Many commentators, experts and stakeholders in the industry are calling for regulation but I do not think regulation is the way forward – visible enforcement is.
And whilst enforcement is expensive, without it there is little incentive to play by the rules. In fact, I would argue that the lack of enforcement has fuelled the incentive that has allowed non-compliant providers to flourish. And, with the introduction of a single enforcement body comprising the Gang Masters Labour Abuse Authority, the Employment Agency Standards Inspectorate and HMRC announced in June, I would argue that enforcement will be even more diluted as the departments work out how best to navigate the issues together. The current enforcement strategies do not work. They serve to incentivise non-compliant offerings and fail to support the compliant parts of the sector. The lack of visible enforcement, the lengthy delays in taking any action, and targeting the workers for recovery all serve the interests of those seeking to circumvent, or disregard, the rules.
Coupled with a series of ongoing rule changes such as the Off-Payroll legislation that took effect in April in the private sector, the incentives for abuse have become even greater and the issues that have made the headlines recently around holiday pay, skimming, mini umbrellas, and disguised remuneration schemes are the result.
Umbrellas are key to supporting and sustaining a strong flexible workforce that is vitally important to the growth and success of the UK economy and UK plc. But, we need to work together to drive up standards so that the whole supply chain can function safe in the knowledge they are working transparently, compliantly and honestly.
A catalogue of legislation has resulted in a series of unintended consequences and much of it has not served to help and support the contracting sector and the whole supply chain for the better. Government has ignored advice and recommendations from stakeholders and industry experts so that the legislation continues to fail to address the underlying issues and challenges that our industry faces.
Crucially, the only way to stop the perpetual cycle of legislation is a radical rethink and simplification of the rules.
The forces and drivers that applied back in the late 1990s are very different today. Contracting and flexible working is now formally part of a company’s structure and no longer seen as a way of reducing costs. Contractors provide the flexibility and agility that the modern business needs to survive and thrive.
A proactive rigorous and robust enforcement is critical to stamping out the bad practice in the labour market and I would suggest that the Financial Services industry holds a clue to what might work more effectively in the form of a compliance network.
The Financial Services sector has formal networks which exist to take responsibility for the compliance of its members. Along with this responsibility they hold the risk of significant fines and penalties if they are not assessing and maintaining strong compliance within their network. The network members also hold risks of fines and penalties where they fail to maintain their own systems.
This would result in a much smaller number of ‘compliance networks’ which are individually responsible for their members compliance, with all the associated risks that come with this.
This seems a logical first step as currently there are many companies relying on compliance accreditations where those accreditations avoid any reference in legislation, side stepping the debt transfer liabilities. That begs the question – is that right?
With compliance moving up the agenda and many agencies relying on compliance accreditations I believe a new framework could be implemented with the rules easily adapted from the Financial Services Sector.
The concept is quite simple:
- If you are a compliance accreditation body you are responsible for the compliance of your members and where one fails, and you have not taken adequate steps then you could be held liable.Whilst this would significantly increase costs to providers as the current regimes would have to adapt significantly to this, the increased opportunities would rebalance the increased costs.
- Supply chains could either rely on the compliance standards knowing that due diligence has been carried out or conduct their own due diligence. Where a supply chain has carried out its own due diligence, they would take the role of the ‘compliance network’ with associated liabilities, many of which they already hold in legislation.If recruiters took any payments from payment intermediaries, they would assume joint liability with the ‘compliance network’.
This would be a significant change and provide a more level playing field across compliance networks and their members.
Such a move would assist in enforcement as many of the 1,200 payment intermediaries would be operating under a compliance network. Those not wanting to operate through a compliance network would be required to register directly with the enforcer, possibly EASI.
It would also allow for a framework for some form of compensation scheme for the sector with all providers required to input based on their turnover. This would help workers where they suffered losses.
One of the key components to make this work is HMRC and BEIS working closely with the networks and establishing a clear framework of operational processes, most of which already exist on an informal basis. It would then also align enforcement with the standards and ensure a far more robust and joined up approach.
The last three decades have thrown up many challenges for the sector so it is now more important than ever that the everyone in the compliant supply chain along with policymakers takes a collegiate approach to work together to do the best for the whole industry to raise standards and drive out those who seek to perpetually break the rules and behave unethically.
