The Government is to amend legislation to prevent some umbrella companies from exploiting National Minimum Wage rules.

Some umbrella companies have been paying their employees salaries below the NMW (£5.80 per hour), and supplementing these pay levels with expenses claims

News story update August 2010:

Last week, the Government decided that action should be taken in relation to these arrangements where they involve National Minimum Wage workers. The intention of the changes, which you can read here is only to exclude the payment of expenses for travel to a temporary workplace from counting as pay for NMW purposes. The changes will take effect from 1 January 2011..                                                                 Justin Phillips, iBalance umbrella Company

Original iBalance news item posted August 2009:

These schemes are operated by many businesses involved in the supply of temporary workers to end users: Employment Businesses and umbrella companies. The labour supply businesses seek to obtain a tax and National Insurance advantage by the creation of a purported overarching employment contract which is intended to enable temporary workers who would not otherwise be entitled to tax relief on travel and subsistence expenses to gain such tax relief

iBalance require’s receipts for all claims and do not (and have never) operated ‘expense dispensation’ schemes.  We only allow contractors to claim work related expenses in accordance with HMRC rules for Employee Expenses.                                                                 Justin Phillips, iBalance umbrella Company

These schemes often involve the use of salary sacrifice arrangements and rely for their effectiveness on the fact that HMRC have issued a dispensation in accordance with section 65 Income Tax (Earnings and Pensions) Act 2003.

In many cases such schemes are marketed to workers as representing a tax and National Insurance saving for the worker. However, the major saving is not to the worker, rather to the party who would bear the higher employer’s National Insurance contributions costs if it were not for the arrangement.

Following responses to the July 2008 consultation ‘Tax relief for travel expenses: temporary workers and overarching employment contracts’, HMRC commenced compliance activity to identify and take action against those Employment Businesses and umbrella companies which are operating in contravention of tax, National Insurance or national minimum wage legislation.

Current compliance activity has identified a number of concerns that are the subject of more detailed, ongoing investigation. These include:

• Potentially ineffective overarching employment contracts
• Dispensations which are invalid, or which have been wrongly applied
• Not complying with the terms of the dispensation
• “Expense payments” made tax-free without that level of expense, or in many cases any expense, having been incurred
• Potential illegal deductions from workers’ pay
• Ineffective and sometimes unlawful management processes; and
• Breaches of national minimum wage

HMRC are working with other Government Departments, including the Department for Business Innovation & Skills, and Authorities, particularly the Gangmasters Licensing Authority, to identify businesses acting in contravention of legislation and will penalise breaches of the law as they are identified. In addition, HMRC are also working with end users of temporary labour to raise their awareness of the consequences of sourcing their temporary workers from businesses which act in contravention of the law.

HMRC are concerned that many lower paid workers being paid through such schemes do not understand the arrangements and in many cases are given little choice as to whether or not they are paid through such schemes. There are also concerns about low paid workers in such schemes opting out of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 without fully understanding the implications of what the opt-out means.

End user businesses which use temporary workers paid though Employment Businesses and/or umbrella companies which do not fully comply with their statutory obligations, clearly run a risk of damage to their reputation and their business if HMRC takes action.

HMRC will continue to investigate and challenge non-compliant Employment Businesses and umbrella companies and will report to ministers in due course on the outcome of that action and the extent of issues being discovered. Ministers will then be able to consider the extent to which compliance action is able to address the undesirable effects of these schemes and whether further measures are required.

HMRC
10th August 2009

http://www.hm-treasury.gov.uk/consult_minimumwage_expenses.htm

The conventional approach to signing and returning contracts (a combination of post / fax and email) is often the ‘bottle neck’ in an otherwise efficient placement process.

Larger big-budget agencies have been using “electronic signatures” to sign contracts for years, however SignatureSense’s low monthly subscription fee for agencies makes this modern business practice available to even the smallest of companies.

Alan Whitford, industry veteran and founder of RCEuro.com, the Pan European community site for recruiters, commented on SignatureSense:

“I think that this offering should be a ‘no brainer’ for recruitment businesses, where the time lost in the administrivia of contract administration can lead to lost revenue and poor client service.  The electronic signature ‘wrapper’ is ideal for confirming NDAs, Terms of Business and Contractor Agreements, all in real time. We will certainly be using the service for our future agreements at RCEuro.”

Jon Richardson, Founder of SignatureSense added:

“We are really excited to see that Agencies find such a direct benefit in using our service.  It’s only a matter of time before electronic signatures are common-place, so the ‘early adopters’ are making the most of a great competitive advantage.”

For full details please visit our website.

Some of the many benefits of our payroll service include:

Fully managed state-of-the-art online system, branded in your own name.

Trained support staff for you and your contractors.

Tax-efficient payments at no cost to your workers.

Convert payroll from an overhead to a revenue source.

Increase cash flow by 50% compared to Umbrella Company.

Clear and simple pay advices for your contractors.

Same-day faster payments made by us on your behalf.

Full online management of timesheets, contracts, health & safety, working time management etc.

All payroll end-of-year forms, tax-code changes, P45s etc are handled by us.

Eliminate VAT issues in finance, medical and other zero-VAT sectors.

Our fully managed service requires minimal involvement by agencies. Simply check timesheets and authorise the final payments (all online) and we take care of every other aspect of your payroll.

Tax savings on legitimate expense claims are shared between the worker and the agency. These savings often exceed the cost of running payroll so many of our clients save money whilst gaining a superior payroll service.

For more information please read more on our website and contact me for a free quote, Justin Phillips on 0845 054 55 60 to discuss details further.

View our guide for consultant here.

You are now able to:

• View a concise summary of our leading umbrella payment service.
• Request for iBalance to send an information pack and call a contractor.
• Calculate the appropriate “Umbrella Company Rate” based on the equivalent Payroll Rate.
• Chat with us live online.

You can still always give us a call on 08450 543 222 if you have any questions.

Feel free to add the URL http://www.ibalance.co.uk/index.php/agency-consultant-guide as a link on your company Intranet.

They were concerned by the mis-use of dispensations and scale-rate allowances and were considering new legislation. However, in their Pre-Budget Report, the Treasury confirmed that they would not be changing the rules, but would tighten compliance for umbrella companies abusing dispensations.

Beware of Dispensations and Scale Rates

Many recruitment industry newswires were recently reporting this as ‘good’ news, but for those contractors and agencies using umbrella companies that operate dispensations, the warning was in the small print:

“However, in the light of evidence from the consultation confirming poor levels of compliance in this area HMRC will refocus its efforts to ensure that the current regime is properly applied”

Compliance bandwagon

Undoubtedly, many umbrella companies will now attempt to jump on the bandwagon and drop their ‘No Receipts Required’ offerings, but whether or not they have the compliance culture or technology to deliver remains to be seen.

The iBalance ethos
Agencies and contractors seeking peace of mind are focusing on the few umbrella companies that have an ethos of expense compliance.

iBalance has always believed that ‘scale rates’ in the context of umbrella companies are an anomaly and have never used them in over 10 years of operating payment services.

Click here and submit their email address and contact number and we will do the rest!

* Once you’ve both completed 6 weeks payroll with iBalance.

To enhance your enjoyment of the tournament you are welcome to sign up to our online score prediction game. No entry fee and simple to use.

A nice additional touch is the quiz questions to answer before the first ball is kicked – your answers may make the difference in the very end between winning and not winning (I would have won the competition in 2002 if Brazil had won the final 1 – 0 instead of 2 – 0).

Anyway,here is the link http://wc10.xor.ltd.uk/ – please pass this on to anybody you think would like to join in.

If you aren’t already playing the game then you can register here

To join the the iBalance mini-league enter this code QALQJG and give yourself the chance of winning prizes offered by iBalance.

Hope to see you in the game.

Some of the many benefits of outsourcing payroll:

• Fully managed, but branded in your own name.
• Free to your contractors.
• Change your payroll from an overhead to a revenue source.
• Increase cash flow compared to Umbrella Company.
• Simplified solution for contractors compared to Umbrella Company.
• Tax-efficient solution for your workers.
• Stickiness – stay in touch with your workers even when they aren’t on your assignments.
• Not just payments but full online management of timesheets, contracts, health & Safety (including working time management).

This is a fully managed service, so the net income goes straight to an agency’s bottom line.

Register your interest here and we will contact you to discuss in more detail.

Justin Phillips MIRP

08450 543 222

iBalance are now able to offer real-time reporting of working hours to agencies.  This enables agencies to ensure that the Working Time Regulations (WTR) are being complied with and the added ability to plan future projects with reference to hours worked.

Agencies can view reports showing which contractors are close to exceeding their maximum average hours.  This makes compliance and planning much easier for agency consultants.  Whilst we always ensured our workers are given their statutory rights, this new system shows agencies and their clients that we are doing this and gives them the ability to use the data to plan future work.

The new online system is especially useful for workers on project rates where it has been difficult to monitor rest breaks.

Its proving particularly popular with agencies who engage manual workers on project rates – the risks of injury and reducing quality of work are much greater for these categories and end-clients want to know its being managed properly.

The new online system lets workers input their rest breaks with the click of a mouse as they submit their timesheet and is very simple for contractors to use.

Under the WTD regulations, all employers have to ensure that workers have adequate rest-breaks:

• maximum hours worked – avg 48 per week in 17 week rolling period
• adequate rest breaks, so workers do no more than:
  • 13 hours in any 24 hour period (day) – cap of 13 x 6 = 78 hours
  • 1 days off (rest days) in every 7 day period (week)
  • statutory minimum holiday periods (28 days not working in addition to ‘rest days’)

Whilst this is the responsibility of the employer (the umbrella company), most clients and agencies reckonise their responsibilty in ensuring they only use compliant umbrella companies that can show they are acting responsibly to protect workers’ welfare.

Another benefit of the new system is greater accuracy when calculating contractors’ National Minimum Wage (NMW) which is a key contractual element of remuneration in most umbrella companies.  Getting this wrong, can attract attention from HM Revenue & Customs (HMRC) both on breach of NMW legislation but also PAYE/NIC compliance as contractor expense claims are invariably affected by minimum wage.

iBalance clients can significantly reduce the deductions made by the taxman using what is known as a ‘salary exchange’ arrangement. Payroll can transfer funds from your gross contract into the new iBalance Group Pension scheme and the taxman won’t receive a penny of this money.

These transfers to the pension scheme represent a key way to ensure that you work as tax efficiently as possible through iBalance.

There are no set up costs whatsoever to join the pension and because you reduce not only income tax but also employers and employees National Insurance as well, the iBalance scheme is far more effective than any existing arrangements that you may have access to. The rate of deductions saved, even for basic rate taxpayers, is 38% and can be as high as 68% for those who pay the highest rate of income tax.

Joining the scheme couldn’t be easier via telephone, post or email and you can stop contributions at any time without penalties. Should you eventually leave iBalance, your fund can either be left invested or you can continue to add to it via a personal investment or via a new employer. Alternatively it can be transferred out to another pension scheme.

In order to bring you this fantastic tax saving opportunity, we are working closely with ContractorFinancials who are Independent Financial Advisers with a unique understanding of the way that you work as a Freelancer. They aim to ensure that you have the knowledge to make the most of your current employment status, helping you to maximise any available tax breaks and avoid any potential pitfalls that you may face.

Pension specialist Andrew Gains explains

‘As well as the substantial tax savings to be gained by diverting part of your invoice into the iBalance scheme, pension funds held elsewhere can be consolidated within this single scheme and could enjoy potentially far better performance and lower running costs. As independent advisers we can compare schemes for you and we ensure that the new pension scheme provider will levy no charges for accepting such transfers’

Contact Andrew Gains today on 0845 062 8888 or email ibalance@contractorfinancials.com for further details.