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Are Umbrella workers entitled to government support?

30th March, 2020

Are Umbrella workers entitled to government support?

Contractor Co-op’s Chief Executive, Chris Mattingly, outlines the financial support currently afforded by the government to those who work via an umbrella.

Eligible workers

As the Coronavirus (COVID-19) pandemic takes hold, the government has taken a number of steps in recent days to provide financial support to workers and their families, so how does this affect umbrella workers?

Due to immense pressure of needing to inject support into the economy quickly, it’s fair to say a lot of the detail is being worked out on the fly.

Updated government guidance confirms that umbrella workers will be eligible to receive financial support under the Coronavirus Job Retention Scheme (CJRS).

Under the scheme, employers can apply to HMRC for a grant to cover 80% of their workers salary up to a total of £2,500 per month.

To access the benefits of the scheme, the umbrella company would be required to furlough (“lay off”) their eligible workers and during the furlough period, the worker would not be permitted to work.

Unless provisions for this have been made in the employment contract, the umbrella company would require consent from their employee to accept the terms of the furlough.

With agreement in place, the umbrella could then apply to HMRC for a grant under the CJRS.

So how much would the umbrella worker be entitled to receive?

Whilst we know the headline number is 80% of the workers salary up to £2,500 per month, umbrella workers typically receive 3 pay components:

  • Basic Pay – a payment for the hours worked at or around National Minimum Wage
  • Holiday Pay – an amount set aside or paid to meet the employees holiday entitlement
  • Commission / Additional Pay– a discretionary amount that reflects the balance of contract income received after all other costs have been considered.

Based on current advice, the umbrella company cannot make a claim for the commission or additional pay component, meaning a grant application could only be based on the workers Basic Pay and Holiday Pay amounts. It is not yet clear whether the holiday pay would need to be recalculated for the purposes of the grant, but for now we assume it will be based on the actual payments made.

As an example, we have calculated that a full time worker with a contract billing rate of £350 per day, could potentially receive £1,595.72 per month under CJRS.

As umbrella workers typically receive variable payments, for those employed for 12 months prior to the claim, the eligible payment under CJRS will be based on the higher of:

  • the same month’s eligible earnings from the previous year
  • average monthly eligible earnings from the 2019-20 tax year

For those employed for less than 12 months, the payment will be based on an average of eligible earnings since they started work.

Employment Rights

Employees that have been furloughed will continue to have the same employee rights as they did previously e.g. Statutory Sick pay, maternity and other parental rights.

How long will it operate for?

The scheme will initially operate for 3 months from 1st March 2020 and may be extended.

To discuss any of the issues raised above please contact the WTT team or email Chris Mattingly at: info@contractor.coop.

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