Hundreds of thousands of agency workers who are paid via umbrella companies have been without incomes for seven weeks, due to confusion about how much furlough pay they can receive under the Government’s Coronavirus Job Retention Scheme.
Around 625,000 contractors including carers, builders and supply teachers work via umbrella companies, allowing them to receive one pay packet for their various jobs and earnings. It means they pay income tax and National Insurance via the PAYE (pay as you earn) system and benefit from workers’ statutory rights as de facto employees.
More than six million people are already signed up to the state furlough scheme, which covers 80pc of a worker’s salary up to a maximum of £2,500 a month and is open to all PAYE earners. Employers continue to pay their furlough staff then claim the money via Government grants.
However, umbrella firms are dragging their feet on paying out due to a lack of ready cash to cover the initial payments and confusion about how to calculate pay.
Many umbrella workers are paid a basic national minimum wage with a discretionary bonus on top to bring their overall earnings to the correct level. The problem is that furlough pay is based on a worker’s regular income and does not include tips, fees, bonuses and discretionary commissions.
It means supply teachers and other contractors could be left with just 80pc of the national minimum wage to get by – less than £7 an hour – despite being used to much higher income.
Julia Kermode of the Freelancer and Contractor Services Association (FSCA), a trade body, said umbrella companies wanted to ensure their contractors were paid as close to their normal earnings as possible but feared they would not recoup the costs if they got their calculations wrong.
“Any umbrellas calculating furlough pay based on an average of all earnings will be taking a very significant financial risk of not being reimbursed by the Government, or needing to repay the Government when their furlough pay is audited at a later date,” she said.
Umbrella firms are also unclear whether to include accrued holiday pay in their calculations. A letter sent to agency workers of one firm said the umbrella could not start to pay furlough leave until it had clarification, citing a potential 12pc gap between what it would have to pay out and what it could get back under the Government scheme. The firm estimated this could become a six-figure liability.
A number of umbrella firms have started to pay out for furlough leave now the grant scheme is up and running. However, some workers have been asked to sign disclaimers allowing the agency to alter the terms of their contacts and pay in case the firm is unable to recoup the full cost of covering workers wages as previously calculated.
One supply teacher, 31, who asked to not be named, said she had been without any form of income since schools closed on March 20 and had been getting by on the support of family.
“Overnight, supply teachers lost our jobs, our incomes, our security. It’s been seven weeks now and I have had nothing from my umbrella firm – it’s incredibly frustrating and there seems to be no progress being made,” she said.
She said she had left full-time teaching for supply work around three years ago to complete a master’s degree and take on more part-time educational charity work. As she receives a tuition fee loan, she does not qualify for Universal Credit and is burning through her savings, which she had intended to put towards buying her first home, she said.
NASUWT, the teachers’ union, and the FSCA have written a joint letter to the Chancellor saying they are “deeply concerned” about the loss of earnings supply teachers are suffering as a result of not being able to access the Job Retention Scheme at “this critical time”.
They asked for clarification, saying it was “surely not the intention” of the scheme to exclude workers on variable pay.
“It has become apparent that significant numbers of workers, including supply teachers, are falling between the cracks; the same workers the economy will desperately need to supply the economy post-Coronavirus,” the letter read.