In the UK, the contracting workforce faces the risk of being taken advantage of by a minority of unscrupulous payroll providers, known as umbrella companies, looking to make a profit from their payslips. A significant portion of these contractors are migrant workers, making them particularly vulnerable to such activity, which can include incorrect tax deductions as part of tax avoidance schemes, pay skimming, and withholding of holiday pay.   

Current migrant workforce in the UK

The Migration Observatory reports that, at the end of 2022, migrants made up around a fifth of the UK working population, equalling about 6.2 million people. Around 25% of UK employers hire migrant workers, and about 71% of these employers say they are reliant on migrant workers, to various degrees.

According to this research, migrant workers are more likely to work part-time, night shifts and non-permanent jobs than UK-born workers. Around 8% of foreign-born workers are in non-permanent jobs, compared to 5% of UK-born workers. Employers also state that migrant workers are more willing to accept lower wages (11%) and work flexible or longer hours (17%).

Migrant workers may also worry about finding work, face a potential language barrier and have a less clear understanding of UK employment practices, legislation, and their rights. This may make them a prime target for unethical umbrella companies operating illegal tax avoidance schemes.

Sector breakdown

A large proportion of migrant workers in the UK operate in sectors that are very reliant on the contracting workforce. Around 16% of our healthcare workers are non-UK citizens. We have discussed the proportion of temporary workers within healthcare, and the risk of exploitation caused by a lack of regulation around payroll practices, in a previous article.

There are also more migrant than UK-born contract workers employed within the IT, hospitality, and transport sectors. CIPD research shows that 1 in 10 workers within these sectors, as well as finance, are migrants, many having come to the UK since 2010 during a more liberal migration regime in this decade. All of these sectors employ a large contracting workforce. For example, estimates at the end of 2022 suggest there were around 100,000 IT contractors overall in the UK.

An unregulated payroll sector

We have documented the difficulties in identifying fraudulent umbrella firms which are taking advantage of contractors' payslips in previous blogs. Even with the government's recent guidance for recruiters on how to identify umbrella companies which may be operating a tax avoidance scheme, there is still a great deal of confusion in the sector and risk to workers, many of whom would struggle to afford a large an unexpected unpaid tax bill from HMRC.

Regulation is needed to protect our vital contracting workforce, both migrant and UK-born workers, who make a significant contribution to the UK economy and ensure essential services continue to run.

With a general election on the horizon on 4 July, it is unclear when or in what form umbrella company regulation will come into effect, but at the PCA, we are hopeful that the next government will recognise the importance of protecting our contracting workforce.