Umbrella companies have come under increasing scrutiny in the past 12 months. A small number of firms have been harshly criticised for everything from payday by payday abuses to salary sacrifice schemes, via abuses of travel and subsistence allowances. Of course, recent scaremongering has fuelled fears that Umbrella companies are trying to compete with recruiters to find placements for their workers.

In this fraught context, I thought it was worth talking about some of the really positive steps being taken by some Umbrella firms to reinforce the employment relationship of the workers – the journey towards becoming a Professional Employment Organisation.

What is a Professional Employment Organisation?

This phrase describes the efforts of some of the UK’s leading Umbrella businesses are trying to develop ‘optimal’ employment relationship for their Umbrella employees.

Critics of the sector often claim that employment under an Umbrella is a sham, only serving to make sure workers get paid. This is certainly true of the least compliant companies, but growing numbers are building market-leading employment relationships that genuinely benefit temporary workers. This is the PEO journey

Is it making a difference?

Obviously the ‘normal’ Umbrella employment obligations are already in place. Umbrella companies are held to all standard employer obligations regarding the treatment of staff, statutory benefits, insurance, health and safety obligations etc.

For workers, this means that all of their basic rights are protected. They must be paid the National Minimum Wage and their hours are restricted by the Working Time Regulations to 48 hours a week – though Umbrella employees who want to work longer hours on some assignments are able to opt out of this.

The improvements to employment relationships that companies are starting to deliver cover a number of areas. These are just a few:

  • Minimum standards of pay between assignments: Employees who are available for work but do not currently have an assignment must be paid a limited number of hours. This is a big financial commitment for Umbrella employers, but it provides workers with a minimum safety net if they struggle to find their next assignment.
  • Minimum hours per annum: Umbrella companies proactively make sure that every employee works and gets paid for a minimum number of hours every year. This can’t just be written into their contracts – it has to be actively implemented.
  • Employee choice on holiday pay: Employees are given a genuine choice of flexible holiday pay arrangements to suit their circumstances. This could mean that holiday pay is accrued and paid out when the employee takes leave or ‘rolled up’ and paid while the employee is working. Equally, holiday pay can be based on basic pay or take into account commissions that might be earned.
  • Choice of pension options for employees: With the introduction of auto-enrolment for employee pensions, Umbrella companies have had to adapt and are offering employees an even wider range of options.
  • Statutory rights between assignments: Umbrella companies are increasingly recognising their obligations to employees between assignments. Maintaining workers’ full statutory rights during these periods is both a major obligation for the business and an important benefit enjoyed by the employee.

These developments in the relationship between Umbrella employers and employees are designed to make sure that workers get maximum benefit from their chosen way of working.

What about expenses?

Expenses paid is still an important area of compliance. Companies aspiring to become Professional Employment Organisations are already setting an example, opting to follow HMRC general guidance rather than using scale rates under individual dispensations. Payments are never made without receipt and every claim is checked to make sure it is legitimate. Subsistence claims are paid at the maximum rates of £5 or £10 published by HMRC without exception to guarantee market-leading tax compliance behaviour.

Setting the standard

Umbrella companies offer certain temporary workers a way of working which is crucial in supporting the flexible workforce. Since that workforce is one of the biggest competitive advantages for the UK economy, we need to do everything we can to preserve this way of working. But to do that, we need minimum standards and an appropriate level of industry compliance. The journey to becoming a Professional Employment Organisation aims to enforce robust compliance standards and then make sure they are delivered.