Umbrellas and agencies should work together to support contractors through the IR35 changes

The Freelancer & Contractor Services Association (FCSA) is urging umbrella firms and agencies to work in partnership to ensure clarity regarding contractors’ gross pay rates, particularly for those new to umbrella.  The appeal comes as the countdown beings to April 6rh when new IR35 liabilities come into effect in the public sector.

The impact of the legislation will undoubtedly see contractors deemed to be caught by IR35 working through umbrella firms rather than being put on clients’ payroll or agency payroll.  Umbrella firms offer a solution because they employ contractors, providing them with all statutory rights and benefits of permanent employment, whilst enabling them to fulfil a series of temporary assignments for various clients.  Umbrella employees are paid via RTI payroll, ensuing that PAYE and NICs are paid.  However, FCSA would like to point out that in addition to PAYE and employees NICs that will be deducted from contractors’ gross pay, there is an additional cost incurred through any RTI payroll, that of employers NICs.  Legally, employers NICs cannot be deduced from employees’ gross pay, so this additional cost must be factored in to assignment rates.

Julia Kermode, CEO of FCSA comment: “Good communication throughout the supply chain is key to a smooth process and we want to encourage agencies to work with their umbrella firms on calculating the impact of employers NICs, the assignment rate and the resulting gross pay rate for contractors – so that workers are clear about what appears on their pay slip.  Good umbrella firms have a thorough on-boarding process in place that will explain everything to contractors regarding assignment rates, pay rates and deductions.  Transparency is key and without clear joined-up communication between agencies and umbrellas misunderstandings may occur which could cause reputational damage.

“We must get away from the perception that umbrellas are ‘baddies’ who just want to take their cut and deprive the contractor of their hard-earned money.  Compliant umbrellas are a valuable part of the supply chain and a relationship between contractors, umbrellas and recruiters should be seen as a true partnership so that clients benefit from the workforce they need without any misunderstandings around pay rates, and so that contractors know where they stand.”