I’m employed by an umbrella company. What next?

Dear Iona,

I have been working for a government department as a self-employed contractor for the past two years. It moved all new & extended contracts within the IR35 rules. So I made my limited company dormant and signed up with Parasol as an umbrella employee in January.

My contract is due to finish at the end of this week, and it cannot be extended further due to a max 2 year rule for contractors (I asked!)

I have asked Parasol if they can furlough me but the answer is no because my contract is ending naturally.

Is this right? The kicker is that had I been able to keep on operating via my Ltd company, I could have furloughed myself through the Job Retention Scheme.
Nicole*
Government contractor

Dear Nicole*,

I’m not an expert in employment contracts and umbrella companies, so I asked someone who is.

Dave Chaplin, founder of the awesome Contractor Calculator site, said those who work for umbrella companies may be labelled as employees – but their contractual terms are different to those of a typical employment contract.

That’s because the worker only gets paid for work actually completed. He says:

“In reality, their status is more aligned with that of worker status and umbrella firms are essentially quasi-employment wrappers that provide an outsourced payroll and compliance function to agencies.”

He’s quick to stress that there’s nothing wrong with how these PAYE based umbrellas work – but adds “it’s important to understand that this is not the same as a typical employment arrangement”. He goes on:

“The purpose of the Coronavirus Job Retention Scheme is to help firms get back on their feet, once things get back to normal, by paying the wages of their employees to remain effectively on standby, ready to then work again. It is not a state aid scheme like universal credit, and is optional for employers to use based on their discretion.”

So contractors like you Nicole are counted as temporary or casual workers, and therefore form part of the so-called ‘contingent’ workforce. Dave says these workers make themselves available to be hired and fired at will and “are often paid slightly more, because they sacrifice the rights of full employment.”

He adds:

“With contractors, there is no long term guarantee of continuous work. Therefore, if the contract was coming to a natural end anyway then the key feature of “retention” doesn’t really apply.”

That unfortunately means that Parasol are not able to furlough you. You therefore count as one of the many thousands of people who have unfairly fallen through the cracks of government support.

Dave admits the legislation around this area is “highly complex”, while government advice and the directions from Treasury haven’t been clear, which has made the situation for umbrella employers even more difficult. Many umbrella companies have had to wait for specific clarity from HMRC before being able to act.

Dave says:

“One thing is for sure. If Parasol could furlough, it would, because in the current market, umbrellas that don’t furlough when they can are suffering brand damage.”

I know this must be immensely frustrating, Nicole, and a further reason why so many freelancers feel very sore about the creeping changes to IR35 legislation. You have indicated to me that you may go back to operating through your limited company after the crisis abates, but you’re not sure.

Either way, I’m wishing you the best of luck and hoping you can manage on a combination of savings, Universal Credit and/or any continued freelance income you can find. 

*We changed Nicole’s name at her request.

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