Parasol = Thats a lot of deductions!

[Yehudi]

What ASB says makes perfect sense, but this is not the issue with Parasol. The reality is that they are charging their flat fee to everybody, then "taxing" any expenses you might claim (at 13.8%), adding it to Eers NI and calling that "employment costs". In reality they are imposing an extra fee on those claiming expenses, to cover their AWR costs, and hoping that we're so happy to get expenses that we won't notice.

[ASB]

What ASB says makes perfect sense, but this is not the issue with Parasol. The reality is that they are charging their flat fee to everybody, then "taxing" any expenses you might claim (at 13.8%), adding it to Eers NI and calling that "employment costs". In reality they are imposing an extra fee on those claiming expenses, to cover their AWR costs, and hoping that we're so happy to get expenses that we won't notice.

Yehudi,

On that basis it would, in my view, be a bit naughty. It's the lack of clarity I think. In effect Parasol appear to be retaining effectively a random amount from random clients to cover their obligations.

Personally I don't see a particular problem with an umbrella effectively saying "we are going to retain this amount to cover, e.g., pay between assignments".

They can only do this effectively individually (specifically retain some of "your money" to cover it - though what do they do when it runs out? Simply sack you?). The other way is to do it collectively; retain some of everybody's money and distribute it to those they have to pay between assignments. In this case it is obvious there would be "winners" and "losers".

Either model could apply and it is down to a given brolly which they choose. However, any given client could have a penchant for one or the other; it seems that you don't get the clarity you naturally want in order to make your own personal informed choice.

I think there is also another ticking time bomb, this being compulsory pension contributions which are slowly being phased in over the next few years.

[The Spartan]

Yehudi,

On that basis it would, in my view, be a bit naughty. It's the lack of clarity I think. In effect Parasol appear to be retaining effectively a random amount from random clients to cover their obligations.

Personally I don't see a particular problem with an umbrella effectively saying "we are going to retain this amount to cover, e.g., pay between assignments".

They can only do this effectively individually (specifically retain some of "your money" to cover it - though what do they do when it runs out? Simply sack you?). The other way is to do it collectively; retain some of everybody's money and distribute it to those they have to pay between assignments. In this case it is obvious there would be "winners" and "losers".

Either model could apply and it is down to a given brolly which they choose. However, any given client could have a penchant for one or the other; it seems that you don't get the clarity you naturally want in order to make your own personal informed choice.

I think there is also another ticking time bomb, this being compulsory pension contributions which are slowly being phased in over the next few years.

According to my most recent payslip my pay between assignments gets paid to me in my pay so once my contract is up I won't get any as they'll say well we paid it to you in advance.

[The Spartan]

The payslip is broken down exactly as follows:

Basic pay
Holiday pay on basic pay
business expenses
Advance payment - PBA
Holiday pay on PBA
Comission
Holiday pay on commission

EE NI
PAYE

and then further down

Parasol Margin
Employment costs

[LisaContractorUmbrella]

I realise they have failed to explain it to your satisfaction and you are entirely convinced you are being ripped off. But, in defence of parasol (who I have never used) and any umbrella out there.

1/ They charge a fee. about 120 quid I think in Parasols case.
2/ They raise invoices based on the amount of time you work at your clients. (What you presumably regard as "your money").

They have to pay:-

1/ Employers national insurance. Clearly this can only come out of "your money" or their fee. Obviously it is the former.
2/ Holiday pay. Assuming you are full time this is a statutory minimum of 28 days (which can include the 8 bank holidays - 9 this year and net). Again this can only come out of "your money" or their fee. Obviously it is the former. As a sanity check as a full time employee your maximum working year is likely to be 252 days, thus this is going to amount to about 8% (20/252). It is no longer permissible to "roll this up". So, you take paid holidays OR they pay it to you in some other way (perhaps at some point during the year as paid in lieu of holidays or between assignments)
3/ SSP/SMP. If this is due they have to pay it (of course if there is a scheme in place that is more generous than the legal requirement it's going to come from your money). If SSP is paid (which it must be at a minimum) then it is largely rebated by the Gov (92%). I would expect the modest difference to probably come from the fee - it's part of the risked cost of the business.
4/ Potentially pay between assignments. Again this has to be retained from "your money".

I certainly haven't seen what to me is a satisfactory explanation of this and details of how it is presented to the employee (but given I'm not a user of one it doesn't really matter).

What I would expect to see is:-

a) A legally compliant payslip. This should be simple and of the form:-

Salary x,xxxx (this being the actual amount of "wages" from the above)
Tax x,xxxx
EErs NI x,xxxx
EEs NI x,xxxx

However, I'm not sure this is allowed any more, HMRC have recently been suggesting more detail is required.

b) A simple subsiduary breakdown of how the billed amount got to salary. Some thing like:-

Invoiced x,xxxx
Expenses x,xxxx
Holiday Pay retained x,xxxx
Pay between assignments retained x,xxxx

Er's NI x,xxxx
Total Gross pay x,xxxx

Paid to you
- Net pay: x,xxxx
- Expenses x,xxxx

Stephen doesn't seem to have explained this effectively, he could do it by a simple worked example in my view. The same also applies to Lisa, I don't think she has really covered it either.

However, I do not expect that either of them are operating "hidden costs" in any way whatsoever. Anything retained above the agreed fee I am entirely certain is to provide the mandated benefits for their employees.

---------------------------------

What seems to be unclear is that certain employment costs are retained "for your benefit". However it is unclear exactly what they are, and it's also unclear as to precisely how you benerift from them. In effect when you get them.

Ok I will try to explain in more detail how all this works using your example

Assignment Rate i.e. the rate that is shown on the business to business contract between the umbrella and the Agency - £500 per day

Weekly Gross received by the umbrella company = £3000.00 = £2500.00 + VAT

Employees Gross Salary = £2500 less Employers NI (which is paid by the umbrella)
less the umbrella company's margin

Which then becomes taxable pay which is:

Less Employee's national insurance
Less Income Tax

A deduction is made for holiday pay as holiday pay is a legal requirement, it is then paid back when the employee takes holiday. There has never been guidance from HMR&C regarding holiday pay and umbrella companies but the pay cannot be 'rolled up' and this is the only other way really of doing it. When the EC working time directives were issued I raised the matter with HMR&C, the DTI (as was), ACAS and the office in Brussels that dreamed up the legislation but I was unable to get an answer so we have continued to work with the deduction and repayment.

Statutory sick pay, maternity pay, paternity pay and adoption pay must all be paid by the umbrella company, they can then be reclaimed from HMR&C when the monthly PAYE payment is made (only 92% of SMP can be recovered so the balance is a cost to business). Deductions should not be made for any other these payments as they are all legal employer obligations.

With regard to deductions under AWR - for the last few years all umbrella companies have had to operate an over-arching contract of employment in order to satisfy HMR&C's requirements for mutuality of obligation. The way that the revenue believe that the obligation is fulfilled on the part of the umbrella company is for them to make payments between assignments which has now become a requirement within the Swedish Derogation Model with section 10 of the AWR. If deductions are made to cover this responsibility, it is my opinion that the approach is not within the spirit or letter of the law but, until the business model is tested in court we will not have a legal precedent.

HTH

[ASB]

Lisa,

Thank you. Hence certainly (in your case at least) no hidden fees. It seems to me that there are 2 possible problems then:

1/ Holiday pay. This is retained (entirely reasonable) and paid to the employee when they take holiday. Equally there is a requirement to pay accrued holiday pay when somebody leaves employment.

The possible problem will therefore be paying people their accrued holiday pay if they choose not to leave employment or not to take holidays. It seems to me that you are caught between a rock and a hard place here.

It is therefore imperative that your employees either take their holiday (whether they want to no not) or accept they have to wait until they leave employment. I don't know if it is entirely accurate but business link:

Paying workers holiday pay | Business Link

"Payment in lieu of annual leave
The only time you can make a payment in lieu for any outstanding holiday is when a worker's employment ends."

Clearly this problem is not of your making, it's the framework you have to work within. I guess possible workarounds might be:-

a/ The employee quits after an assignment and comes back after a week crystallising an ability for you to pay the accrued holiday pay (I doubt if this would work though since it would appear it's entire purpose is to defeat the protection being afforded).
b/ Implement a holiday policy which is a "use it or lose it" type of basis and pay a bonus equivalent to any leave foregone at the start of the next holiday year. Again I suspect this might be problematic if it were contractual.

Overall then it does appear that this is an unfortunate consequence of ill thought out well meaning legislation.

2/ Pay between assignments.

This seems to be a particular risk. If you are not allowed to deduct it then just how are you supposed to fund it? As soon as you have a few employees out of assignment then you simply won't have the funds to do it (without making a loss). If the required rate was minimum wage then if somebody was between assignments for about 10% of the time you would be loss making on that person - since the minimum wage would be greater than your accumulated fees (this of course also assume your fee is pure profit which it obviously isn't). If the required rate was something like half of the average rate then the problem would be much worse.

I wouldn't have an answer to this, save that fees have to go up to cover it, but this of itself seems a little unfair on the employee - if they are not out of assignment. [Perhaps this is why I see people referring to fees of hundreds of Euro a month on overseas brollys]

It seems to me that the regulations may offer sensible protection for the standard "temp", where margins are higher and the agency finds the work etc. However it seems it falls completely on it's arse for the umbrella type scenario where the purpose of your business is largely to simply to act as somebodys payroll service.

No doubt this was all raised with our political masters and completely ignored during the consultations.

[Wary]

Thanks Lisa for the detailed explanation. So companies that deduct additional “employment costs” specifically to cover sick/maternity are:
1) Covering costs that they don’t actually incur themselves (apart from 8% of maternity)
2) Potentially acting illegally as they should foot the bill for any costs arising for these, as is their legal obligation as an employer
That’s interesting to hear. I wonder if Steve@Parasol would now be willing to justify on this forum why they engage in this practice?

I note that you withhold money and pay it when the contractor actually takes holidays. However, what if they don’t take their full holiday entitlement? Is this money at some point returned to the contractor and if so when?

I’m interested to know more about a brolly employer’s obligations to pay you between assignments. Personally I wouldn’t expect anyone to pay me for this period, unless they were making unreasonable deductions whilst I was earning money, and because my current brolly charge low fees then I wouldn’t claim it. However:
• How much are they obliged to pay? Is it a flat rate for everyone or based on your previous assignment?
• For how many weeks are they obliged to pay you?
• Can they claim any of it back from HMRC?
• You say that that can’t legitimately deduct an allowance from you each month in order to pay you between assignments (c/f holidays). I presume they can’t also use a rolled-up method whereby a portion of your monthly pay is deemed to be for such periods but they’re just “paying” you up front for it?
• How do you personally cover the costs of such overheads? By setting your weekly fee at an appropriate level across the board and absorb it within that?

[The Spartan]

This should be interesting if Steve does decide to respond

[LisaContractorUmbrella]

Lisa,

Thank you. Hence certainly (in your case at least) no hidden fees. It seems to me that there are 2 possible problems then:

1/ Holiday pay. This is retained (entirely reasonable) and paid to the employee when they take holiday. Equally there is a requirement to pay accrued holiday pay when somebody leaves employment.

The possible problem will therefore be paying people their accrued holiday pay if they choose not to leave employment or not to take holidays. It seems to me that you are caught between a rock and a hard place here. I can only comment on the way that we operate - any holiday pay not taken is paid back at the end of the financial year

It is therefore imperative that your employees either take their holiday (whether they want to no not) or accept they have to wait until they leave employment. I don't know if it is entirely accurate but business link

Paying workers holiday pay | Business Link

"Payment in lieu of annual leave
The only time you can make a payment in lieu for any outstanding holiday is when a worker's employment ends."

Clearly this problem is not of your making, it's the framework you have to work within. I guess possible workarounds might be:-

a/ The employee quits after an assignment and comes back after a week crystallising an ability for you to pay the accrued holiday pay (I doubt if this would work though since it would appear it's entire purpose is to defeat the protection being afforded).
b/ Implement a holiday policy which is a "use it or lose it" type of basis and pay a bonus equivalent to any leave foregone at the start of the next holiday year. Again I suspect this might be problematic if it were contractual.

Overall then it does appear that this is an unfortunate consequence of ill thought out well meaning legislation. Yep - we have a lot of that to deal with

2/ Pay between assignments.

This seems to be a particular risk. If you are not allowed to deduct it then just how are you supposed to fund it? As soon as you have a few employees out of assignment then you simply won't have the funds to do it (without making a loss). If the required rate was minimum wage then if somebody was between assignments for about 10% of the time you would be loss making on that person - since the minimum wage would be greater than your accumulated fees (this of course also assume your fee is pure profit which it obviously isn't). If the required rate was something like half of the average rate then the problem would be much worse.

I wouldn't have an answer to this, save that fees have to go up to cover it, but this of itself seems a little unfair on the employee - if they are not out of assignment. [Perhaps this is why I see people referring to fees of hundreds of Euro a month on overseas brollys]

It seems to me that the regulations may offer sensible protection for the standard "temp", where margins are higher and the agency finds the work etc. However it seems it falls completely on it's arse for the umbrella type scenario where the purpose of your business is largely to simply to act as somebodys payroll service.

It is a big risk and it means that my team here have to monitor things incredibly closely - you wouldn't believe how many new systems we have had to implement over the last few months

No doubt this was all raised with our political masters and completely ignored during the consultations.

I believe it was but unfortunately the TUC got involved in the discussions so it all got a bit complicated

[LisaContractorUmbrella]

I’m interested to know more about a brolly employer’s obligations to pay you between assignments. Personally I wouldn’t expect anyone to pay me for this period, unless they were making unreasonable deductions whilst I was earning money, and because my current brolly charge low fees then I wouldn’t claim it. However:
• How much are they obliged to pay? Is it a flat rate for everyone or based on your previous assignment? The amount cannot be less than minimum wage
• For how many weeks are they obliged to pay you? 4 weeks
• Can they claim any of it back from HMRC? I wish
• You say that that can’t legitimately deduct an allowance from you each month in order to pay you between assignments (c/f holidays). I presume they can’t also use a rolled-up method whereby a portion of your monthly pay is deemed to be for such periods but they’re just “paying” you up front for it? You're right
• How do you personally cover the costs of such overheads? By setting your weekly fee at an appropriate level across the board and absorb it within that Just another cost to business really - no Ferrari for me this year