There’s a stark difference between unintentional oversight and calculated intent to disadvantage. When a contract is designed to get a worker paid under the National Minimum Wage (NMW) rather than if they were employed through a compliant umbrella company, we feel falls into the latter category.
In this article we will show how an umbrella company, led by an FCSA council member, engineered contracts to pay workers less than what they would receive if they were being paid the NMW.
We were also curious to understand how reactive the FCSA would be if the worker submitted the payslip directly via the payslip service. Is it a service to help contractors or a way for the FCSA to control a narrative without intent to take any action?
In this article we deep dive into how an FCSA accredited umbrella company deprived the most vulnerable workers from their most fundamental right to get paid the NMW in the middle of the covid crisis.
Let’s split this article in 5 parts:
- What is the Elective Deduction Model (EDM)?
- What did the payslips audit and contracts issued by NumberMill reveal?
- What is the position of the FCSA on the EDM?
- What was the FCSA response when the contractor uploaded the payslip?
- The Contractor Journey? The story from a worker’s point of view
- Why Modern Slavery is so important?
- What should you do if you were employed in an EDM?
- What is the Elective Deduction Model?
The EDM in the UK is a way of managing the pay and taxes of people who work for agencies—like temporary workers or contractors. In plain terms, it’s like a hybrid between being self-employed and being an employee.
In the EDM, a worker is technically self-employed, which usually means they’d have to deal with their taxes and miss out on some employee benefits. But with the EDM, they choose (“elect”) to have their earnings taxed like they’re an employee. This means taxes are taken out of their pay before they receive it, like PAYE (Pay As You Earn).
Let’s try to simplify it for everyone:
Imagine you’re a painter. Often, painters work for themselves, which means they must take care of their own taxes and they don’t get paid if they go on holiday or get sick. That’s being self-employed.
Now, let’s say a big company, let’s call it “Big Umbrella,” tells you, “Hey, come work with us. You can still be your own boss, but we’ll handle your taxes like you’re one of our regular workers. You just paint, and we’ll pay you with the taxes already taken out, easy-peasy.”
Sounds good, right? Because dealing with taxes can be a headache. But there’s a catch.
Even though “Big Umbrella” takes taxes out like you’re a regular worker, they don’t give you the extra goodies that their regular workers get, like paid holidays or sick leave.
Why do they do this? Well, it’s cheaper for “Big Umbrella.” They don’t have to pay as much in taxes for you, and they don’t have to worry about giving you the perks of a full-time employee. It’s a sweet deal for them. For you, not so much. You get the simplicity of not handling your own taxes, but you also don’t get the benefits that should come with that.
Where it really becomes a problem is when the border of Modern Slavery is being crossed and where the most vulnerable are engaged in these contracts and are being paid without their knowledge under the NMW.
2. What did the payslips audit and contracts issued by NumberMill Reveal?
The first thing that we should do is transparently show the payslip audit report and the contract for one of the workers who contacted Contractor Voice:
- Click here to download the SafeRec payslip audit report
- Click here to download the contract given to the worker
What you will see when you review these documents is that what NumberMill created is very similar to what has been described in point 1.
But let’s not rush into it and let’s review these documents one by one!
- The Contract
When you review the contract, you can see that the worker signed a document where they renounce all of their most fundamental right:
- Statutory Sick pay
- Statutory Maternity pay
- Holiday Pay
The question you might ask yourself is: why would anyone sign such a contract? Why agree to an arrangement where the umbrella company is not an umbrella employer? Why choose to be self-employed instead of an employee with all the perks?
Believe it or not, we are currently in the middle of a cost-of-living crisis and, the worker was making their decision in the middle of a world pandemic; temporary workers who agree to be paid the NMW often work in industries where working is a necessity and negotiating with the umbrella company is rarely an option.
This is exactly why these models work especially well with the most vulnerable, simply because they are often not able to say ‘no’, nor in a position to negotiate.
2. The Payslip
Now we have had a look at the contract, let’s have a look at the payslip.
First and foremost, before diving into the payslip, we can see the presence in the reconciliation statement of a deduction called “Employment Costs”. The audit conducted via SafeRec shows that these deductions are the combination of Employer NI and Apprenticeship Levy; the FCSA has changed its Code of Compliance to ensure that all employer costs are broken down on payslips where undisclosed deductions have been masked by the aggregate figure.
For reference, the Apprenticeship Levy is a tax that larger businesses in the UK pay to help fund new apprenticeships. Any business with an annual payroll over £3 million must pay 0.5% of their total payroll into this fund.
It is hard to see how a “Self Employed” worker (please note the speech mark) paid the NMW has an annual payroll of £3 million! And if the Apprenticeship Levy is not owed, is it still being paid to HMRC or kept by the Umbrella Company?
Worker paid under the National Minimum Wage
When you look at the payslip you can see that the worker’s gross pay on this payslip is £363.92 for working £37.5 hours.
Considering we have established above the presence of employment costs (only paid by big organisations like Umbrella Companies) it is hard to say that the worker is not ‘Employed’ by the umbrella, especially when one of these employment costs is exclusively for larger businesses with an annual payroll over £3 million.
Because of all these reasons, it is clear that in our point of view, the £363.92 must include holiday pay and therefore in this case the gross pay is broken down as below:
- Salary: 324.73
- Holiday Pay: 39.19
- Total gross: 363.92
A salary of £324,73 for 37.5 hours worked, results in the salary being under the NMW. This raises the question, did the FCSA identify these practices during their annual compliance assessments or did the umbrella company, led by an FCSA council member, not present to FCSA assessors all contracts on how their workers were engaged? It is not widely discussed, but the FCSA assessors rely on the information provided to them and do not hold any liability for passing compliance when that information is relied upon.
To answer this question, we decided with the worker, to upload the payslip into the FCSA payslip auditing facility to see if the same payslip audit report would be provided to the worker by the FCSA and to understand what action the FCSA would take.
3. What is the position of the FCSA on the elective deduction model?
One year ago, when Contractor Voice exposed Orange Genie’s £2 deduction, there were several commentators online that questioned the FCSA’s stance on the exposé; the FCSA didn’t define the exposed practice in their Codes and, as a result, hadn’t stated the consequence of such an action.
The great thing about the Elective Deduction Model is that the FCSA has been very clear as early as January 2021 when they described this model as a “Type of non-compliant model[s]”. (Link to their article).
In this article the FCSA explain that “these solutions come in many forms, cherry-picking what deductions are paid, and which are not”.
It is going to be interesting to see if the FCSA will ‘cherry-pick’ the sanctions imposed on NumberMill, considering that the CEO, Louise Rayner, is an FCSA council member and responsible for implementing a ‘type of non-compliant model’, or purpose far worse than that given the NMW breach.
4. What did the FCSA do when the contractor uploaded the payslip through to their payslip auditing service?
Although it does not make it as clear as it should, the FCSA outsource the auditing of any uploaded payslips to SafeRec, which is the same company that Contractor Voice use to audit their payslips.
The real question is “What does the FCSA do when a worker uploads a payslip for one of their members that failed the SafeRec audit?” Are the results transparently shared with the worker? Do they take action and suspend the Umbrella Company, or do they keep the information private and hope the contractor loses interest?
Therefore, we asked one of the contractors to upload their payslips on the FCSA portal, where they state that they aim to provide an answer within 7 working days; the payslip was uploaded on the 20th October 2023.
Over three weeks later, at the time we are publishing this article, the worker still hasn’t received any feedback. They simply received a confirmation email from the FCSA that the payslip is with their external auditing team.
5. The Contractor Journey? The story from a worker’s point of view
We also believe that it is essential to see the story from the contractor’s perspective to understand how NumberMill get the worker to sign such contracts and, in this case, what happened when the worker called in to inform them he had been advised he was paid under the NMW.
The worker explained that they were unhappy with the pay that they were receiving and that they raised the complaint with NumberMill. The contractor also reports the frustration that they experienced when trying to deal with NumberMill over the issue. They sought external expertise to validate what they were experiencing and confirmation from a third-party that their pay should be more. The contractor reports that NumberMill refused to change their engagement and that the worker eventually made the decision to resign from NumberMill and seek alternative employment where they would be paid at least NMW and receive statutory employment benefits, which their new employer provided.
6. Why the issue of Modern Slavery is so important and why it goes way beyond Umbrella Companies?
The conversation around Modern Slavery is pivotal because it illuminates the severe exploitation that lies at the far end of unfair labour practices, similar to those uncovered in NumberMill’s use of the Elective Deduction Model. Modern slavery is about coercion and stripping people of their freedom for someone else’s benefit, a gross human rights infringement.
While we’ve discussed NumberMill’s exploitative practices, it’s important to acknowledge that such schemes are not exclusive to umbrella companies. Recruitment agencies and other employment intermediaries can also engage in various manipulative practices. Abolishing umbrella companies won’t get rid of these practices, but more enforcement will. The broader issue is the opacity in employment contracts and payslips that can obscure the reality of a worker’s situation.
The level of transparency, or lack thereof, evident in payslips and reconciliation statements is crucial. It can either conceal or reveal whether workers are unknowingly trapped in an EDM model, and this level of transparency is only provided by compliant umbrella companies (not PEO, Agency, or any other PAYE model). When details are obscured, it’s easier for unscrupulous entities to take advantage of workers, edging closer to what can be considered Modern Slavery. This transparency is not just a matter of legal compliance but of ethical business conduct, ensuring that workers fully understand the terms of their engagement and are not unwittingly subject to exploitation.
7. How to know if you work in an Elective Deduction Model? And what to do when you investigate?
If you find yourself engaged in an EDM, it’s crucial to take proactive steps to safeguard your rights. Here’s a clear action plan:
- Look at your Contract: Educate yourself about your employment status and rights. If your contract says you don’t have right to holiday pay and you are being paid the national minimum wage, you probably are engaged in the EDM model.
- Get your payslip audited: Organisations like Contractor Voice use SafeRec to audit payslips. Get in touch with us at:
- Ask Questions: If there are discrepancies or concerns, raise them with your agency or end client or the umbrella company. You have the right to a transparent explanation of how your pay is calculated and why certain deductions are made.
- Document Everything: Keep a detailed record of all communications, payslips, contracts, and work hours. This documentation is vital if you need to challenge your umbrella or seek external help.
- Report Concerns: If you’re unsatisfied with the responses or suspect illegal or unethical practices, report your concerns to the appropriate bodies. This could include the Employment Agency Standards inspectorate, HM Revenue and Customs, or the Gangmasters and Labour Abuse Authority.
- Seek Support: Contact a union representative or workers’ rights groups for guidance and support. Organisations such as ACAS provide free, impartial advice on workplace rights and can guide you through the next steps.
- Take Legal Action: If necessary, consider legal action. This may seem daunting, but Contractor Voice has recently announced that Penningtons Manches Cooper LLP are interested in hearing from any contractors who suspect wrongful, unauthorised or unexplained deductions in their wages by payroll companies and are invited to register their interest in a group claim HERE.
Remember, being in an EDM doesn’t mean you have waived your rights. You are entitled to fair pay and transparent working conditions, and there are avenues available for recourse if you find yourself in an unjust situation.