A significant amount of construction workers are losing out on pension contributions due to an increase use of umbrella firms…
An increase in the proliferation of umbrella firms is pushing many construction workers out of auto-enrolment pension schemes.
Umbrella firms are undoubtedly controversial, as it means workers are not classified as full time employees. A vast number of the more than two million people who work in construction are employed via agencies and are often “advised” to be paid via an umbrella firm. Unions warn this is undermining the pension scheme, as well as allowing firms to dodge tax. In essence it forces workers to be “self-employed” when they are in fact employees and should be granted full employment rights.
In the past the government has tried to tackle the issue, going so far as to ban agency and payroll companies for falsely claiming workers were self-employed in 2014. This had allowed firms to avoid paying national insurance contributions of some 13.8 per cent per worker.
In a bid to get around the rules, some workers were required to join umbrella firms, which is legal for temporary workers. However, the Union of Construction, Allied Trades and Technicians (UCATT) said this meant workers were paying both employee’s and employer’s national insurance contributions. Additionally, they do not qualify for employer’s pension contributions as the worker is deemed to be the employer.
UCATT said: “Many construction workers move from job to job and agency to agency every few months.
“Because they will be paid via an umbrella company for a period of less than three months before they move on to another agency and another umbrella company, they risk remaining in a pensions limbo and never being enrolled on auto enrolment.”
Acting general secretary Brian Rye added: “Frequently, workers are engaged on projects for less than three months, meaning companies are not obliged to offer the worker the opportunity to sign up for auto enrolment.
“This is creating large holes in workers’ pensions and creates the impression that it is not worth saving for retirement as the rewards are minimal.”
Rye said the problem would be made worse in the future.
“As these contributions increase in the next few years workers are going to find the cost prohibitive and opt out,” he said.
According to Citizens Advice, as many as 460,000 people could be “bogusly self-employed”. Speaking in August, the organisation said many were compelled by “unscrupulous” employers to register as self-employed when they should in fact have full employee status.