This NUT briefing gives guidance for supply teacher members on the implications of undertaking supply teaching work through a contract with an “umbrella company”.

What are “umbrella companies”?

Supply teachers working for agencies are increasingly asked to agree to sign contracts with “umbrella companies” which act as the employer instead of the agency.

Supply teachers are often tempted by promises of better pay and benefits under such arrangements, but as this guidance makes clear, such assurances are not always borne out in reality. The company, however, will certainly profit from the complex relationship between the teacher, the agency, the school and the umbrella company itself.

NUT members should be aware that they cannot be compelled to sign a contract with or work for an umbrella company, although supply agencies may decide only to offer work via an umbrella company arrangement.

What is the NUT stance on umbrella companies?

The NUT has substantial reservations about umbrella companies’ role in the supply teacher market and advises members against entering into such arrangements wherever possible. Many umbrella companies make unrealistic promises to teachers which are not fulfilled and can, in some cases, lead to penalties being incurred for breaches of HMRC rules.

NUT members are strongly advised to obtain full details of the proposed contract, ask appropriate questions as advised in this document, and where necessary seek advice before committing themselves to any contract. NUT members already employed by an umbrella company should always check their payslips carefully to confirm that the correct deductions have been made. NUT members should never sign any document exempting an agency or umbrella company from any liability.

How does an umbrella company arrangement work?

An umbrella company is a company that acts as an employer to workers such as supply teachers who obtain work via employment agencies.

Umbrella arrangements usually involve four parties – the teacher, the school, the agency and the umbrella company. The teacher’s employment contract is with the umbrella company, not the agency.

Typically, the agency will agree an assignment and pay rate with a school and then look for a supply teacher to undertake the assignment. The umbrella company receives the payment from the school for the work undertaken by the teacher (with the agency also receiving its commission). The umbrella company processes the payment, deducting PAYE income tax, employee’s and employer’s National Insurance contributions and the umbrella company’s fee. The residual sum is then paid to the supply teacher as net pay. Many umbrella companies also withhold an amount of money to be passed back to the supply teacher at a later date in the form of holiday pay. Some also make deductions in respect of other benefits such as pension, sick pay and child care vouchers.

Why do supply agencies use umbrella companies?

The key benefit to supply agencies is that they can reduce their own costs by avoiding the cost of being the legal employer of supply teachers (including employers’ NI contributions and payroll administration costs) themselves. Instead the umbrella company will be the employer - but it will generally pass these costs on to the supply teacher.

Why would supply teachers agree to work for an umbrella company?

Teachers are frequently persuaded to agree to an umbrella company arrangement because they are attracted by potential tax relief on expenses and allowances. The legal position on tax relief (explained in more detail below) is far from clear, so the likelihood of benefiting in this way has always been far from certain. The Government intends that from April 2016 the ability to claim tax relief on travel costs and some other expenses will end.

Agency workers should be provided with written documentation detailing the rate of pay or the minimum rate of pay the business expects for them, before any work-finding services are provided. This written information is however often contradicted by oral assurances that the teacher will be paid at a higher rate, leading many teachers to believe that the daily rate paid by schools is what they will receive as their daily gross rate of pay. However, it is the lower rate that is often paid, leaving teachers with less take home pay than they expected.

Finally, some supply teachers are increasingly finding that supply agencies will only offer work to them if they are employed by umbrella companies. The NUT strongly disapproves of this practice but regrettably it is not unlawful.

Are supply teachers working for an umbrella company entitled to tax relief on business expenses?

Umbrella companies largely sell themselves on the basis that supply teachers can reduce their tax bill by claiming legitimate business expenses.

However, HMRC rules on the taxation of expenses and allowances for temporary workers are complex – see the HMRC website at http://www.hmrc.gov.uk/incometax/tax-allow- ees.htm. Even where they seem straightforward, it is ultimately up to HMRC to interpret them definitively. Consequently NUT members should be wary about relying on what other parties such as umbrella companies say on this area. Ultimately, it will be you – not the umbrella company – who bears the tax liability if HMRC says that tax relief is not allowable.

If you are uncertain about any existing claim for tax relief, you are strongly advised to seek advice from HMRC before submitting a claim. Contact details for HMRC can be found at: http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=hpkspulskxM.

The Government has announced its intention to end the tax relief on travel costs and some other costs from April 2016. Formal consultation on this proposed change is being conducted during the second half of 2015.

Do supply teachers earn more if they work for an umbrella company?

This will depend upon the pay rate for the work undertaken, the level of the umbrella company’s fee, and other variables such as the amount which can be claimed as legitimate expenses etc.

Unlike teachers working for a supply agency in the conventional way, supply teachers working for umbrella companies will be paying the employer’s NI contributions as well as their own. They will also have to pay the umbrella company’s fee. Although they may be able to offset some tax liability against legitimate expenses - subject to the above caveats - they may find that by the time they have paid employer’s NI contributions and the umbrella company fee they are little better off than a typical agency supply teacher.

How can supply teachers find out whether they would be better off with an umbrella company?

If you are considering signing up with an umbrella company, you should ask for a detailed pay illustration, including a comparison between the pay rates available from the company and an agency, and a full list of costs incurred by accepting employment with the umbrella company. This will help you make an informed decision.

You should watch out for hidden costs which may not be included in a pay illustration – such as lower introductory fees which then rise to higher fees at a later date, or penalties for leaving the company.

What should a pay slip from an umbrella company look like?

The important thing about a pay slip is that it should be clearly set out and not unnecessarily complex. It should be possible to understand the process of how the calculations have been made, what all the various deductions are for and that the calculations are correct.

It is particularly important that any expenses listed on the pay slip tally with those which have originally been submitted.

If there is anything on the pay slip which is unclear, or gives rise to any concern, members should contact the umbrella company without delay, with a view to resolving the matter promptly. In cases where there is uncertainty regarding a tax issue – for example, a tax code - it may be necessary contact HMRC directly. In cases of difficulty in resolving an employment-related problem, members should contact the NUT for advice on their employment rights.

In the event of payroll errors where PAYE has been incorrectly applied, HMRC will in the first instance seek to resolve matters with the umbrella company. However, if it cannot settle any unmet tax liability - for instance because of insolvency - HMRC may approach the individual supply teacher in order to make good any outstanding sum.

If any ‘holiday pay’ has been deducted to be paid at a later date, make sure you know about the arrangements for payment and ensure you receive it when it is due.

What if there is a problem?

Where difficulties arise in satisfactorily resolving any issues with an umbrella company, members should contact HMRC for help in resolving any tax issues and the NUT for advice with regard to their employment rights.

What are the key NUT concerns about umbrella companies?

The main concern is one of principle. The high fees charged by agencies and umbrella companies drain funding for education away from schools - but they still pay supply much less than those directly employed by local authorities and schools. Furthermore, many umbrella companies are based overseas in order to avoid liability for tax on their profits.

Regarding the position of individual supply teachers, the NUT is concerned that they could put themselves at risk of HMRC action in case of issues over tax expenses or payroll errors.

Some NUT members have been told by their agencies that they will not be offered work, or further work, unless they sign up to an umbrella company arrangement. You cannot be forced to agree to an umbrella company arrangement. Agencies may, however, choose not to offer further work to supply teachers who do not wish to enter into such an arrangement.

Finally, as stated previously, teachers working for an umbrella company may find that promises of higher earnings may not translate into reality given the need to pay the umbrella company fee in addition to the employer’s National Insurance contributions.

CONTACTING THE NUT / GETTING INVOLVED

If you need further advice, please contact the NUT representative in your school in the first instance.

NUT members in England requiring individual advice and support should in the first instance contact the NUT AdviceLine on 0203 0066 266 or [email protected] (open from 9 am to 7 pm). Members in Wales can contact NUT Cymru on 029 2049 1818.

You can join the NUT on-line at www.teachers.org.uk/joinus or on 0845 300 1669. You can make enquiries about your own membership on 0845 300 1666

The NUT wants supply members to work together and with NUT members locally to take forward our work for supply teachers. Contact the NUT locally to find out how you can take part in your local NUT association. You can find contact details on your membership credential or on the NUT website at www.teachers.org.uk/contactus

National Union of Teachers August 2015