An employment tribunal in the UK has ordered umbrella firm DNS Umbrella Limited to pay a contractor nearly £30,000 after it was found that the firm had unlawfully deducted Employers National Insurance and Apprentice Levy.

The contractor, Mr A Pajpani, was engaged on an assignment for the United Kingdom Health Security Agency between 2 March 2021 and 27 May 2022. As part of this process, he entered into an employment contract with DNS Umbrella Limited, signed on 5 March 2021.

In the case, Pajpani made claims against Alexander Mann Solutions (now known as AMS), the United Kingdom Health Security Agency and DNS Umbrella Limited.

At the outset of the hearing, the Tribunal heard applications on behalf of Alexander Mann Solutions and United Kingdom Health Agency requesting that Pajpani's claims against them should be struck out as these two firms had no contractual relationship with Pajpani and had made no deductions from his wages. The Tribunal granted these applications, and the hearing considered the Pajpani's claim against DNS Umbrella.  

DNS Umbrella Limited deducted the sums payable to Pajpani for Employer's National Insurance and the Apprenticeship Levy. This amounted to a sum of £513.49 per week during the assignment. These sums were calculated by Pajpani, and DNS Umbrella agreed that the sums were accurate. Pajpani was also aware that these sums were being deducted and chased DNS Umbrella several times, inquiring about how the Apprenticeship Levy was being spent.

Pajpani was also later advised by his accountant that these deductions could be challenged as unlawful. He claimed an unauthorised deduction from wages under Section 13 of the Employment Rights Act 1996.

The Tribunal accepts Pajpani's evidence that he did not know that the term 'on an umbrella company basis' meant that deductions for Apprenticeship Levy and Employer's National Insurance would be made from his agreed rate.

Fiona Coombe, Director, Legal & Regulatory Research at SIA, said, "This case illustrates the fact that the nature of an umbrella company's position in the supply chain is often misunderstood by workers who are employed by them. The umbrella companies have an obligation to explain to their employees exactly what they are being paid by the agency and how they operate. As a result, umbrella companies should define the terminology used and spell out the obligations and rights of both the company, the agency and the worker in their contractual documentation".

The Tribunal did not accept that deductions for Apprenticeship Levy and Employer's National Insurance are lawful deductions authorised by a statutory provision.

"The Tribunal does not accept that the position in relation to deductions or the contractual authority to do so was made sufficiently clear to the Claimant (Pajpani)," the Tribunal stated. "In particular, the Tribunal accepts the Claimant's evidence that the reference to being paid 'on an umbrella company basis' was unclear and did not give the Claimant sufficient information about the deductions that would be made to his wages”.

"The Third Respondent (DNS Umbrella) deducted the sum of £513.49 per week in relation to Apprenticeship Levy and Employer's National Insurance Contributions throughout the Claimant's assignment (from 2 March 2021 to 27 May 2022). On this basis, the Claimant is owed the sum of £29,885.12," the Tribunal stated.