Why Umbrella Companies SHOULD be paying 80% of wages to Contractors under the UK Government’s Job Retention Scheme

At Flexr we have been paying qualifying employees of all Umbrella Companies 80% of their average pay over the last year of employment and having been doing so following the announcement by the Chancellor, Rishi Sunak.

Many people seem to disagree.

We are hearing that the stance taken by Umbrella Companies varies between paying absolutely nothing, which is of course their choice as the Job Retention Scheme is not compulsory, 80% of the 2019/20 National Minimum Wage rate with hours based on the average hours worked in the past financial year or indeed some are following our lead and paying a full 80%.

We felt it was important in a divided market place to explain why we consider 80% of Gross Wages from the previous tax year is right, just and indeed covered by HMRC guidance.

Over many years of business, we have gained significant experience in the area of legislation drafting and fully understand how confusion can be caused when legislation is drafted quickly and during a period of National Emergency. Legislation needs to read alongside guidance and even then there will always be gaps, weaknesses and over the years’, guidance and spotlights issued by HMRC bring greater understanding.

We can only praise the UK Government for the support that has been given to the business community and in turn the workers of all types that will be crucial to help bring our economy out of the current lockdown. That said, for the first week following the announcement, the whole business community were left short of guidance from HMRC to understand the detailed rules surrounding the CJRS. Where employees were on permanent contracts or “fixed rate contracts”, the advice was reasonably easy to establish quickly and we guided our clients accordingly. For more flexible working arrangements there was very little help available for a business to base decisions.

Our reaction was to take the words of the Chancellor in the spirit that they were made and support ALL of the UK economy. Rishi Sunak in his address to the nation on 19 March 2020 mentioned workers of all types being supported and shortly after the announcement of support for employees came the announcement of support for the self-employed. To us this showed the intention of UK Government and based on that, payments were processed for those employees engaged with our Umbrella Companies that had been unable to work due to COVID 19. These first payments were made on Friday 3 April for the week commencing 23 March.

There is no doubt that we were exposed to a risk that HMRC would not be in agreement with our approach and we would be unable to claim the grant. The directors of the companies supported by Flexr agreed unanimously that this was the intention of the scheme and the support that was intended. Cash flow was considered a problem but solved by the deferment of VAT. This therefore, had in our opinion, centralised the risk to being one between the Umbrella Company and HMRC rather than the individual workers. It is our opinion that “Umbrella” is a term that is outdated and should be recognised as “outsourced employment”. As such the employment management company deals with HMRC and interprets legislation on behalf of both the Agency and the Employee. They should be the central point of control. By making payments and issuing paperwork to employees the pressure was taken from the agency and the worker and controlled by experts.

Moving on a week and all our connections were holding our breath for the detailed guidance to be issued. Regulators in the industry, including Professional Passport who accredits the Flexr process, had campaigned for clearance and on 15 April this guidance became public. In our opinion the guidance was clear and we felt far more relaxed when making Furlough payments that week.

Nearly two weeks later and we are shocked to hear that there is still confusion – Here is why we believe that UK Government guidance is clear.

The Good Work Plan

Lord Justice Taylor made it very clear in his report that workers require clarity to ensure that they FULLY understand the entity that employs them and the amounts that they can expect to be paid.

During the period of the Coronavirus disruption, Key Information Documents have become law and each worker engaged through an Umbrella Company should be receiving this document BEFORE they start to work with an Agency.

The document identifies the “Contract Rate”, the “Gross Pay” and also supplies an estimate “Net Pay” that a worker can be expected to receive from the assignment – There is no mention of National Minimum Wage, no mention of discretionary bonus and certainly nothing to indicate that the Umbrella Company will retain anything themselves other than the margin, which again is clearly stated.

This document gives a clear UNDERSTANDING of the payments that can be expected and relationship between the agency, the Umbrella Company and the worker.

The document will help tremendously moving forward in the industry and we personally look forward to achieving more clarity on the uplift given by agencies to Umbrella Company workers.

The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction

The whole guidance is reproduced on our website www.flexr.com

Whilst appreciating that guidance and legislation needs to be considered in full and not simply extracts, the key clauses relating to temporary workers and their wages are points 7.3, 7.4 and 7.5.

7.3 In calculating the employee’s reference salary for the purposes of paragraphs 7.2 and 7.7, no
account is to be taken of anything which is not regular salary or wages.

This point clearly shows that there is an issue in defining “regular” and further guidance will be given. A combination of points 7.4 and 7.5 explain that “regular” cannot include various items. These items talk about amounts that cannot vary, cannot be dependent on performance of the business and cannot be payable at the discretion of the business. They basically condense into the definition of a commission, tip or discretionary bonus and it is clear to understand why this would be the case.

If the business is not earning income, not paying commissions and bonuses due to the pandemic, why should HMRC fund the extra wage of the worker.

We feel that the points made in 7.4 and 7.5 has led to the belief that Umbrella Companies will not be able to make a payment relating to the historic discretionary bonus element of the weekly pay. However, point 7.4 (a) excludes these subsequent points if they are arising from a legally enforceable agreement, understanding, scheme, transaction or series of transactions.

The clarity given by the Key Information Document supports feedback from workers in the industry that clearly UNDERSTAND that their pay is the “Gross Pay” element of the Umbrella Company procedure, not the “Contract Pay” and certainly not the NMW element.

We have seen Umbrella Company contracts that describe the payment above NMW as a “discretionary bonus”, we have seen contracts that describe the payment as “Guaranteed, regular but varied”. These definitions are legally different, one potentially not seeming to be LEGALLY ENFORCEABLE, but both arise from an UNDERSTANDING between the worker, the Agency and the Employer.

It is our opinion therefore that ALL Umbrella Company workers who are offered Furlough by the Umbrella Company should be paid 80% of their Gross Pay based on the previous tax year average and those powered by Flexr will continue to do so and provide Ethical solutions to the temporary employment marketplace.