British and Irish trade union Unite has called on the NHS to outlaw umbrella companies operating throughout the organisation.

Unite stated that after the introduction of new rules in April which effectively outlawed agency workers operating in the public sector from being paid on a non-PAYE basis, some agencies operating within the NHS have begun to force workers to be paid via umbrella company contracts. Unite also claims that if a worker is employed via an umbrella company, they lose 46 pence in the pound of eligible earnings, through national insurance (workers have to pay employer’s national insurance contributions) and income tax.

After being contacted by several members working in the NHS, Unite contacted the NHS and urged them to stamp out the use of umbrella companies. However NHS Improvement, the body responsible for overseeing foundation and NHS trusts, refused to do so. 

NHS Improvement stated: “NHS Improvement has for some time been concerned about the fees staff working through agencies have to pay if they are not employed under PAYE terms and conditions. NHS Improvement has stated through the agency programme that we do not encourage the use of personal service companies or umbrella payment methods within trusts and have encouraged the use of PAYE mechanisms. We are also aware of some umbrella organisations that are working outside of tax rules and are creating a risk to staff and have been working with HMRC to get a clear message on these unlawful practices.”

“Despite the warm words from the NHS their response is entirely inadequate, workers are being ripped off and exploited and their message is essentially that it is down to individual trusts if they allow umbrella companies or not,” Unite national officer for health Colenzo Jarrett-Thorpe said. “It is especially alarming that the NHS is aware that there are illegal umbrella companies operating in its environs and they are still not prepared to ban them.”

“Umbrella companies are simply parasites feasting off workers wages. Although they are not technically illegal they are certainly immoral,” Jarrett-Thorpe said.

Unite stated that it will be now targeting individual NHS trusts that allow umbrella companies to be used. “Not only will we ensure they ban their use in future but we will also demand they pay back the money our members have lost, in being paid in this way,” Unite said.

Julia Kermode, chief executive of The Freelancer & Contractor Services Association, which represents umbrella companies, commented on Unite’s statement.

“Like Unite, FCSA is committed to protecting the workforce from exploitation so I am disappointed to hear Unite’s national officer for health Colenzo Jarrett-Thorpe tarring all umbrella companies with the same brush and calling for the NHS to ban the use of umbrella firms. I have been talking to NHS Improvement about the important role of compliant umbrella firms in the supply chain, and I am meeting up with their agency team in the next two weeks to discuss how we can work together in the best interest of contractors and freelancers. 

“As a result of the IR35 reforms which took effect in the public sector in April we are indeed seeing many newcomers entering the umbrella market with no track record so due diligence is essential to minimise risk,” Kermode said. “We are particularly concerned about the increasing proliferation of offshore loans and disguised remuneration schemes that seek to reduce contractors’ taxable pay via contrived means.  These schemes put individuals at significant personal financial risk as HMRC will pursue them for the unpaid tax and NICs, plus penalties and interest.” 

Kermode added that the new Criminal Finance Act coming into force on September 30 will also pose an additional risk for agencies to manage as they could be accused of not preventing tax evasion if they put contractors in touch with such dubious schemes. “It is important that agencies and contractors choose compliant umbrella firms to partner with and I will also be raising this with NHS Improvement,” Kermode said.