The TUC calls for umbrella companies to be banned after findings show these companies are increasingly being used in the labour market. 

The Trades Union Congress (TUC) have criticised the work practices linked with umbrella companies, leading to the union body calling for umbrella companies to be banned.

Umbrella companies are frequently used by recruitment agencies in order to operate a pay as you earn (PAYE) system for agency workers, who they find work for.

As part of this, many umbrella companies will also employ the agency worker, with these staff becoming “employees” of the umbrella company.

However, the TUC have argued that this system puts workers in a situation where they are not able to exercise their basic rights.

Specifically, the union body has stated that workers face misleading and unfair deductions from pay.

Additionally, it has further suggested that breaches of holiday leave and pay entitlement are widespread – with umbrella companies preventing workers from taking their holiday entitlements.

Employment relationships may also be compromised through their use, the TUC claims. Many agency workers are left unsure of who to raise queries or problems with, meaning they are often stuck between the umbrella company and the firm they work for.

The report findings also showed that some umbrella companies promote and coerce their employees to use tax evasion schemes, leaving workers potentially facing huge future tax bills.

As such, the TUC has expressed its concern that all these problems could be set to compound post-pandemic with the increase in agency work as well as recent changes to IR35.

In order to clamp down on the umbrella companies, the TUC is calling for:

  • A ban on umbrella companies by requiring employment agencies to pay and employ the staff they place with clients
  • Joint liability laws in supply chains, that make the end client and any contractor in the supply chain responsible for upholding the legal rights of those working in the supply chain
  • Greater trade union access to workplaces and new trade union rights

TUC General Secretary Frances O’Grady said:

Everyone deserves decent work. But too many low-paid workers are denied the wages they were promised and basic legal rights like holiday pay because they work for umbrella companies.

These scandalous workplace practices have no place in modern Britain. But our inadequate regulations let dodgy umbrella companies off the hook – allowing them to act with impunity.

Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries. It’s time for ministers to ban umbrella companies, without delay.

Shazia Ejaz, Director of Campaigns at the Recruitment & Employment Confederation (REC), reacted to the idea of banning umbrella companies:

Recruiters want a robust and fair supply chain, where workers’ rights and pay are protected and all parties’ responsibilities are clear.

There are many compliant umbrella companies out there which provide valuable services – but clearly there are too many which act unethically and exploit loopholes in the law. These bad-faith companies have been allowed to thrive alongside legitimate businesses for too long.

We’re glad that the government is moving forward with the creation of a single labour market enforcement body which will have the power to regulate umbrella companies.

We also advise our members to always conduct rigorous due diligence on their supply chains, and have published guidance on what to look out for when working with an umbrella company so that recruiters can ensure they operate with fairness and transparency.


*These findings were taken from the TUC’s report ‘Umbrella companies: Why agencies and employers should be banned from using them‘.