The government has issued a consultation document seeking views on a set of proposals which, among other things, seeks to tackle non-compliance with employment rights by umbrella companies.
The main aim at this stage is to agree on a definition prior to a further consultation which would introduce specific requirements on them.
Generally, umbrella companies are businesses which employ workers with the aim of supplying them to an end client, but which do not provide work-finding services or supply individuals to hirers. Unlike recruitment agencies, therefore, they are generally unregulated unless their other activities bring them within the scope of the current regulations that apply to employment agencies or other businesses.
In order to start the process of formalised regulation, the government says that umbrella companies must first be defined in law. The consultation proposes two possible approaches. The first would explicitly state that they employ or engage an individual “with a view” to them being supplied. This would encompass scenarios where individuals may approach an employment business with their own umbrella company.
The other would apply three specific tests, all of which would have to be met for a business to be considered an umbrella company. It would not, however, seek to limit the methods that could be used in the recruitment sector for engaging and paying workers.
The government also proposes two options for introducing regulations containing the minimum legislative requirements for umbrella companies to comply with. Option one would set the minimum legislative standards in just a few key areas that have consistently been reported as the most problematic for individuals employed (or engaged) through umbrella companies such as handling of pay and holiday pay.
Option two would involve introducing regulations that go beyond these few key areas and would instead set minimum standards for how umbrella companies should perform their function to support employment businesses in meeting their statutory obligations as the business responsible for providing work-finding services and supplying the individuals. This approach to the regulations would set minimum standards in a wider range of aspects of umbrella companies’ involvement in the agency work supply chain.
The closing date for responses to the consultation is 11.59pm on 29 August 2023.
To read the consultation in full, click here.