Reply to: Umbrella found guilty of deducting ERNI & AL

[NotAllThere]

Hays are a bunch of crooks, client pays for triple time for bank holiday if worked, standard rate if not, contractor doesn’t see it, hays have pocketed it.

Not when I worked through them.

[eatenrifles]

Judgement here
Mr P Weldon v 6CATS UK Ltd: 2410288/2019 - GOV.UK

But it doesn't detail any of the facts of the case. It would be nice to know the exact circumstances.

Employment Tribunals Rules of Procedure 2013 – Rule 21

Under rule 21 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013 (SI 2013/1237), if no response has been presented to the employment tribunal within the relevant time limit, an employment judge may issue a judgement on the information available, or may decide to hold a hearing.

Looks like the brolly didn't contest the claim so it was automatically awarded to the contractor. Not sure this is the legal landmark it's being made out as.

[VelcroPower]

I still don’t understand why contractor is liable for AL, they don’t turnover enough to qualify. The agency/umbrella on whose turnover the percentage is based should pay.

When you engage with an Umbrella Company you're basically signing up as an employee to receive NMW + Commission.

How that commission is made up is usually as a result of getting the invoice value for the work and then deducting the costs that the Umbrella incurs employing that individual and their margin.

Those costs for the Umbrella will include Employer's NI, Apprentice Levy and any Employer Pension contributions. Because the Umbrella company invoices for the work it's the Umbrella company's money so they can divvy that up pretty much however they want to arrive at the figure that is Gross Pay. Gross pay is the NMW they have to pay and then whatever is left from the invoice after deducting all those Umbrella costs is the commission.

i.e If the government brought in a new payroll tax of 10% per run for companies with £5m+ turnover for Coronavirus - that would get passed on to the umbrella contractors because that then becomes a cost of employing them. The individual contractor wouldn't be anywhere near those limits but as an employee of the umbrella company they are generating those costs that will have to be covered somewhere.

[Old Greg]

On the flip side, I put a time sheet in on Friday/signed off, got paid on Tuesday (PSC). Best system I've worked under! (never did any Out of hours, so didn't notice / miss the fiddle you mention)

There are up sides to "global hyper mega corp"

M

I worked through Hays and they were taking a 4.7% margin with the same excellent payment terms and administration you describe. Super-sweet.

[mjcp]

Hays are a bunch of crooks, client pays for triple time for bank holiday if worked, standard rate if not, contractor doesn’t see it, hays have pocketed it.

On the flip side, I put a time sheet in on Friday/signed off, got paid on Tuesday (PSC). Best system I've worked under! (never did any Out of hours, so didn't notice / miss the fiddle you mention)

There are up sides to "global hyper mega corp"

M

[Anonimouse]

The mess comes about in part because the agency is advertising for a worker but intends to contract with the brolly company. The advert should say something like "£400 pd to be paid to supplying company" but it's cumbersome. Really, the agency should just put the worker on their books for PAYE as Hays would with a temp. Smaller agencies could buy in services from a brolly.

Hays are a bunch of crooks, client pays for triple time for bank holiday if worked, standard rate if not, contractor doesn’t see it, hays have pocketed it.

[Anonimouse]

I still don’t understand why contractor is liable for AL, they don’t turnover enough to qualify. The agency/umbrella on whose turnover the percentage is based should pay.

[malvolio]

The advertised rate has nothing to do with it, its all about the rate in the contract, which for the contractor is between them and the brolly, what the agent pays the brolly is of little or no relevance, taking brollys out of the equation we all know of examples of an agent saying "sorry the rate has come down £50 a day since interview"

So it's fine to offer something for £500 when you know full well you will only ever pay £350... Fair enough.

People who can afford it will walk away. Most won't. The role will still be filled by someone who can't afford to walk.

[Old Greg]

I suppose the agency should advertise as "X less applicable taxes" and that could be enough fluff to make it legal.

The mess comes about in part because the agency is advertising for a worker but intends to contract with the brolly company. The advert should say something like "£400 pd to be paid to supplying company" but it's cumbersome. Really, the agency should just put the worker on their books for PAYE as Hays would with a temp. Smaller agencies could buy in services from a brolly.

[SimonMac]

...and that is also illegal under the existing law. You have to advertise the rate for the role payable to the worker, not an artificially inflated one to make the role more attractive. This is what Chaplin calls the Smurf Rate, attractive but non-existent.

Of course that rate may well be 30% under market, which has the same effect except you risk not seeing good people applying, but that's the client's decision.

The advertised rate has nothing to do with it, its all about the rate in the contract, which for the contractor is between them and the brolly, what the agent pays the brolly is of little or no relevance, taking brollys out of the equation we all know of examples of an agent saying "sorry the rate has come down £50 a day since interview"

[malvolio]

I haven't read all the responses yet so apologies if already covered.

The client wants a body and is willing to pay X (plus agency commission). They don't want to deal with Ltd Co freelancers due to having the frighteners put on them by HMRC so they stipulate use of umbrellas, possibly as a solution recommended by their agency if they are clueless.

The agency advertises the rate of X, maybe a little less if they want to top up their commission.

The umbrella illustration is X less all the (now illegal) deductions.

The taxes have to be paid, no-one is arguing that. However, who is responsible for advertising the rate being paid? The client has a budget and the agency doesn't necessarily know the ErNI and AL element. It's only once the umbrella is engaged that the true rate is known.

...and that is also illegal under the existing law. You have to advertise the rate for the role payable to the worker, not an artificially inflated one to make the role more attractive. This is what Chaplin calls the Smurf Rate, attractive but non-existent.

Of course that rate may well be 30% under market, which has the same effect except you risk not seeing good people applying, but that's the client's decision.

[ladymuck]

This is also just wording. They key is that the new rate is "negotiated". I think what's advertised is always open for negotiation.

I suppose the agency should advertise as "X less applicable taxes" and that could be enough fluff to make it legal.

[elsergiovolador]

The taxes have to be paid, no-one is arguing that. However, who is responsible for advertising the rate being paid? The client has a budget and the agency doesn't necessarily know the ErNI and AL element. It's only once the umbrella is engaged that the true rate is known.

This is also just wording. They key is that the new rate is "negotiated". I think what's advertised is always open for negotiation.

[ladymuck]

Forgive me if I am naive, but won't the only thing that comes out of this be the wording in contracts from brollys? Contractors will still be paying the ERNI and AL, it will just be worded as an assignment rate or similar

I must admit I don't know much about the deductions side of it but yes, I'd guess so. The brollies/clients won't be taking the hit on this so I suppose the contractors bottom line is the only place it can still come from. Still needs doing clearly and legally though. I'm sure we've touched on this in posts in the past but it's not my area so didn't look in to it much.

I haven't read all the responses yet so apologies if already covered.

The client wants a body and is willing to pay X (plus agency commission). They don't want to deal with Ltd Co freelancers due to having the frighteners put on them by HMRC so they stipulate use of umbrellas, possibly as a solution recommended by their agency if they are clueless.

The agency advertises the rate of X, maybe a little less if they want to top up their commission.

The umbrella illustration is X less all the (now illegal) deductions.

The taxes have to be paid, no-one is arguing that. However, who is responsible for advertising the rate being paid? The client has a budget and the agency doesn't necessarily know the ErNI and AL element. It's only once the umbrella is engaged that the true rate is known.

[NotAllThere]

But yeah, appears I am just overdoing the semantics here.

Not really. The advertising of £400 a day, when it's "really" equivalent to a salary of ~£300 a day is misleading. Perhaps roles should be published with a nominal salary equivalence - but I can't see how it would ever happen.