Umbrella company workers believe that there are no advantages to working via an umbrella company, new IPSE research finds

New research from IPSE has found that despite over a third (34%) of self-employed workers operating through an umbrella company, over 3 in 5 (61%) umbrella company workers believe that there are no advantages in operating via an umbrella company.

The use of umbrella companies – which act as an intermediary between contractors and clients in the supply chain for payroll purposes – has grown substantially since the reforms to IR35 in the private sector in April 2021. In fact, nearly 7 in 10 (69%) umbrella company workers have stated that their clients insisted they work through an umbrella company since the changes to off-payroll working last year. Furthermore, almost two thirds (63%) stated that they had some level of choice but were given a limited range of umbrella companies to choose from whilst, concerningly, five per cent were unable to choose their umbrella company and had to operate through one allocated to them.

However, despite self-employed workers being forced to operate via an umbrella company, over half of umbrella company workers (57%) believe that their role is outside of IR35 and that the supply chain won’t allow them to take the risk of working through their own limited company. 

The disadvantages to working via an Umbrella Company

Despite the recent growth in the use of umbrella companies, the research found that over 7 in 10 (74%) freelancers are dissatisfied about working via an umbrella company, with 1 in 2 (50%) very dissatisfied. When asked why they are dissatisfied, 8 in 10 (80%) umbrella company workers cited the fact that they have to cover the liability for Employer’s National Insurance, and where applicable, the Apprenticeship Levy, through a reduction in their day rate.

The report also found that the majority (70%) of umbrella company workers believe that they have lost their independence and ability to work however they wish since joining an umbrella company.

Andy Chamberlain, Director of Policy at IPSE (the Association of Independent Professionals and the Self-Employed), said: “The fundamental problem here is that people are being forced into pseudo- employment relationships they do not want. Since the IR35 changes came in a year ago, thousands who proudly consider themselves self-employed are being pushed into umbrella companies under disadvantageous conditions, often without even a choice over which umbrella company they use.

“Today’s report was shared with the government following their recent call for evidence and we hope that they listen to us and the many umbrella company workers that have failed to see the benefits of working via an umbrella company. In particular, we hope that they put forward recommendations that stop freelancers from being forced into working for umbrella companies that limit their independence and give them no real benefits.”