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Why regulation of umbrella companies would be good news for recruiters


Matthew Taylor may have given the government’s response to his review of modern working practices a measly four out of ten, but the response did contain some positives.

Chief among them was the government’s acceptance of Mr Taylor’s idea that umbrella companies and the contractor services sector, in general, should be regulated.

The government outlined its thinking in one of four government consultation documents published in response to the Taylor Review.

How would regulation of umbrellas work?

The consultation document seeks views on Matthew Taylor’s recommendation that umbrella companies should be regulated by the Employment Agency Standards (EAS) Inspectorate.

Stating that greater transparency in the umbrella market would be beneficial, the Department for Business, Energy and Industrial Strategy (BEIS) document states:

“Subject to the recommendations of the Director of Labour Market Enforcement, the government will look to legislate to bring certain activities of umbrella companies and other intermediaries within the regulatory scope of the EAS, so that work-seekers using them are better supported and protected.”

BEIS says that, through legislation, it could require umbrella companies and intermediaries to meet a set of minimum standards in line with the requirements currently in place for employment businesses.

This, it is argued, “would also provide the work-seeker with an avenue to make a complaint if an issue could not be resolved directly with the umbrella company or intermediary, without having to go to an Employment Tribunal.”

The Director of Labour Market Enforcement, Sir David Metcalf, is already considering the question of umbrella company regulation through a separate consultation.

However, the BEIS review provides a further opportunity for the government to seek views and evidence from both contractors and recruiters.

The government plans to use the BEIS consultation on agency workers, as well as Sir David’s report, to “collect further evidence to inform how to achieve” regulation.

Why regulation should be embraced

While umbrella companies and other intermediaries are currently not directly regulated by EAS, they are required to comply more generally with taxation and employment law.

There is, however, a low barrier to entry into our industry and, apart from looking for FCSA (Freelancer & Contractor Services Association) accredited member status, it can be difficult for recruiters to identify compliant providers and spot the cowboys.

As we argue in this blog post, the regulation would expose poor practice by unscrupulous providers.

Government is listening to us

The consultation actually references my comments welcoming the idea of regulation, which I made when the Taylor Review was published last year:

“We welcome the suggestion that umbrella companies should be policed by the EAS Inspectorate. Such a move would help to raise standards in our sector and drive the cowboys out of business.”

It’s good to know that the government is listening to ADVANCE and taking our views on board.

I stand by my comments welcoming umbrella company regulation, which I believe is long overdue and would make life a lot easier for recruitment businesses who want to partner with compliant, ethical and professional umbrellas.

By Shaun Critchley, Managing Director at ADVANCE

Tagged With: Blog, Umbrella Companies, Recruitment Business, Recruitment Business Owner, Government, Recruitment Sector, BEIS, Consultation Document, Employment Agency Standards, Freelancer & Contractor Association

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