The latest research shows that over 7 in 10 (74%) Contractors are dissatisfied about working via an umbrella company, with 1 in 2 (50%) report being very dissatisfied.
The use of umbrella companies, which act as an intermediary for payroll purposes between contractors and clients in the supply chain, has grown significantly since the IR35 reforms to the private sector came into effect from April 2021.When asked for the reasons for this high level of dissatisfaction, Contractors cited issues such as;
Having to cover the liability for Employer’s National Insurance (and the Apprenticeship levy where applicable) through a reduction in their daily rate. (80%)
Having to pay Umbrella Company fees. (79%)
Fewer tax breaks compared to operating through a limited company (75%)
Not being entitled to the same full employment benefits as an employee (72%)
Loss of independence & control (70%)
There are also issues around the calculation and administration of holiday pay arrangements, with 38% of umbrella company workers reporting that they did not understand how holiday pay is calculated and administered by the umbrella.
Another key finding of the research is that umbrella workers feel they have had little control over the whole process, with 69% of umbrella company workers stating that their clients insisted they work through an umbrella company since the changes to off-payroll working were introduced last year.
Additionally, 63% stated that they were given a restricted range of umbrella companies to choose from, and more worryingly, 5% were unable to choose their umbrella company at all, having one allocated to them by the client or agency.
Despite the large number of contractors being forced to operate via an umbrella companies, 57% believe that their role should have been assessed as outside IR35, but the supply chain isn’t allowing them the opportunity of working through their own limited companies.
When looking through the survey results, Paul Eustace, co-founder of Outside Spy commented, “It’s obvious from this research that many contractors are being forced into arrangements they feel are not only inappropriate but are being badly or incorrectly administered. One encouraging sign that we see is that the supply chain now has more confidence in assessing roles correctly, which is resulting in more roles being made available to limited company contractors, with more contractors taking advantage of our service in order to be notified of those key Outside IR35 roles”.
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