Have Umbrellas sacrificed their future to survive the lockdown?

It’s been nearly two months since lockdown was imposed on us. It feels like years. Remember when you didn’t have to queue to go to the shop and a cough wasn’t a dangerous weapon?

On Sunday night the Prime Minister made the first tentative steps to move the country back to normality. Along with a new five tier measure of progress, we’re currently somewhere between 3 and 4, he encouraged those who couldn’t work from home, like manufacturing and construction to go back to work this week. He also talked about schools possibly re-opening from the 1st June at the earliest, assuming that we can keep that ‘R’ number down. And restaurants and pubs possibly from the beginning of July. To support the economy, The Chancellor has extended the Furlough scheme until October, which is a serious lifeline for 7.5 million workers. But the cost is spiralling. The Institute for Fiscal Studies estimate the cost could come to £80Bn, more than we spend on education in an entire year. The focus is slowly, carefully, shifting towards recovery.

There are many unknowns and it all depends on whether we can control the spread of this horrible virus and businesses can still function under social distancing. With so many thousands of people tragically dead and a monstrous recession on the cards, there is a small glimmer of light at the end of the tunnel.

But now that we can at least start to think about how we get back to work, it’s a good time to reflect on the last couple of months in our industry. We ask ourselves, have Umbrellas damaged themselves in the long-term to survive the short-term?

In particular, what will be the impact of the confusion over Umbrellas paying contractors? Teaching in particular has been badly hit. Many supply teachers haven’t been paid by their payroll provider since the Lockdown began. That’s nearly two months of financial worry and stress on top of having to live through a pandemic. Now that the Furlough scheme has been extended, what about the uncertainty for contractors?

This has been a daily reality for hundreds of thousands of contractors. And it was brought to national attention just a couple of weeks ago on BBC R4’s MoneyBox programme featuring People Group’s CEO, Terry Hillier, and Julia Kermode from the FCSA.

As payroll providers, our job is simply to pay people. Large parts of our industry have let down contractors, recruiters and end-client hirers. And it’s all because of the discretionary bonus. Until recently, even industry insiders didn’t understand the implications of payments structured as NMW + discretionary bonus. Umbrellas are blaming the Government for not giving clarification, but what was it doing in contracts in the first place? The discretionary bonus clause became obsolete in 2016 with the removal of travel and subsistence. It’s a relic from yesteryear. In our opinion it’s less about HMRC and more about apathy and a lack of innovation on the part of Umbrellas.

Finally, it looks like some Umbrellas will pay, but for many people it’s likely to only be 80% of the National Minimum Wage, which is a big drop in income.

When furlough was announced, People Group moved fast to make sure everyone was paid. Not only did we pay in the first week, but we paid at 80% of the calculated average taxable earnings. So far we’ve made 12,000 payments coming to £2.5 million. Our Umbrella contracts had long since removed the ‘discretionary bonus’ element and expressed it as a guaranteed payment as part of normal pay. Terry summed it up “We did this because it was the right thing to do. The Government put this in place to do exactly what we’ve done – to pay people who would otherwise have been laid off. We wanted to pay as many people as are eligible. The key to me and the team was that we had to make sure our contractors were looked after.”

We’ve been inundated with messages of support and thanks from contractors who have been paid [www.peoplegroupservices.com/what-do-our-clients-think/]. Plus, our recruitment clients are happy that this is one less headache that they have to deal with.

It was absolutely the right thing to do from a moral standpoint. But we believe it was also commercially smart. While contractors are trying to put food on the table, recruiters are also trying to keep their businesses afloat. Our industry is a delicate ecosystem where we all rely on each other. If one part suffers, we all suffer. By supporting contractors, we support the whole industry.

Katy Rees Founder & MD of Smile Education says “For us, the furloughing process has been relatively easy, for our temps, because it was all taken out of our hands. There’s been a lot of legislation we haven’t had to navigate, it’s been a headache we haven’t had to have because People Group did it so efficiently.”

Trust has been damaged

The failure of some Umbrellas to step up will hurt everyone. Over the years, some Umbrellas have tried to exploit tax loopholes and indulge in bad, sometimes illegal, practice. This is the minority, but it creates a reputation which tarnishes the whole industry. In recent years, our industry has worked hard to build a more professional reputation and stamp down on bad behaviour. There has been a lot of progress but this has arguably been damaged in recent weeks.

Does anybody really believe that as we move towards normality and people go back to work that everything will just return to the way it was? Contractors won’t forget that they were left in the lurch by their payroll provider. We believe that the last eight weeks will have profound implications for the future of our industry. The Umbrella model itself is under threat.

Necessity is the mother of Innovation

For most, a payroll provider is like an electricity supplier. As long as the lights are on, why should you care about how the electricity got there? This has commoditised our market with most suppliers racing to the bottom to compete and try to win business on price. We believe there is a difference between a quality payroll provider and a cheap one. You’re seeing that play out right now.

Contractors and recruiters have woken up to the fact that their payroll provider matters. In the future we believe the entire supply chain will demand more power and information on how they’re paid. End-client hirers will also demand that their contractors aren’t paid in any way that might reflect badly on their values.

One of the biggest developments we’ve seen with this crisis is how necessity has accelerated innovation. Video meetings, working from home, the decline of the high street. These were all slowly happening, but they’ve been turbo-boosted. It could be the same for the Umbrella model. We developed our PEO product in 2017 because we felt that Umbrella wasn’t fit for purpose anymore. We do still have some Umbrella products and they’re good, compliant payroll products that, if well structured, can serve a purpose. But we have them because that’s what recruiters and contractors are used to.

In our opinion PEO is the future. It has none of Umbrella’s problems, but delivers on every level. Reviewed and recognised by HMRC, our PEO product delivers cashflow savings on VAT and is simple, transparent and easy for contractors, recruiters and end-client hirers.

The best way to predict the future is to build it

This confusion has damaged our collective reputation and, most importantly, it has brought unnecessary stress and hardship to innocent people. We all have a responsibility to fix it.

The only way to recover is with bravery and action. We must innovate to benefit everyone – contractors, recruiters and end-client hirers. This is an opportunity to change things for the better. To make the systems and processes that underpin our work the best they can be. But it’s going to take all of us together embracing change and actually doing it. As a nation, we’re not out of the woods yet. We all hope that the R number stays down and slowly we can return to normality safely. But another spike in infections is possible which would lead to lockdown being reimposed. If that happens, we must be prepared to support our contractors. We can’t put them through this again.

Are you unhappy with your payroll provider or umbrella product? Visit our webpage to find out more about the actions you can take: https://peoplegroupservices.com/not-happy-with-your-umbrella/