Contractors are being exploited and cheated out of holiday pay by rogue umbrella companies, according to survey

The findings paint a bleak picture of systemic abuse, neglect and confusion around umbrella working, according to ContractorCalculator.

In a statement, ContractorCalculator said: “The survey found that most contractors are forced into umbrellas against their will, with restricted choices and promotions of dubious schemes. Most are unaware of basic legal rights and compliance requirements regarding pay, pensions, and regulations. There is also widespread confusion and lack of transparency around pay rates, payslips, holiday pay accruals, and deductions, with less than half able to determine if they are being paid correctly.

Dave Chaplin, CEO and founder of ContractorCalculator, said: "Our survey paints a picture of an industry rife with non-compliance and contractor exploitation. This is unacceptable, and urgent reform is needed. The onus is now on regulators and the government to crack down on umbrella malpractice.

"The Government was warned about unregulated umbrellas before IR35 (off-payroll working rules) came into effect but failed to act. They've sat on data that could have prevented abuse yet done nothing. And they haven't educated workers enough to protect themselves. The statistics speak for themselves.

"There is concern that legislation won't come until 2025 or later, and a General Election could also stall matters. Some short-term fixes could help, like removing the ability to opt out of the conduct of employment regulations with umbrellas. It makes no sense for contractors to forfeit rights. Mandating agencies to offer payroll options, not just the umbrella way of working, would also help give contractors a choice and bolster competition and quality of service.”

ContractorCalculator said it received 611 responses from self-selecting respondents as part of its survey. Half the respondents said they were confused over pay, with only 49 per cent understanding the difference between an assignment and PAYE rate, according to ContractorCalculator. On holiday pay, just 54 per cent said they understood accrued versus rollover structures, with 19 per cent reporting problems related to their holiday pay.

A Government spokesperson said: “While it’s important to give companies flexibility over how they hire the staff they need, it’s vital that we protect workers from any behaviour that doesn’t meet our strict employment rights.

“That’s why we launched a consultation to review how we regulate umbrella companies and what further measures we can implement to tackle non-compliance. We will publish our response soon.”

The estimated tax gap from marketed avoidance sold primarily to individuals, has fallen from an estimated £1.5bn in 2005-06 to £0.5bn in 2021-22, the spokesman added.