Over the past few years there have been continued cries from employers groups and trade unions to ensure workers’ rights were not diluted as Britain left Europe.

To appease them, an employment bill was promised by the government and the concern ebbed. Yet the Queen’s Speech in May acted as a reminder that pledges are often broken. No such bill was included. There’s been outcry as a result and it’s brought into sharp focus the reality that we have lost touch with how, why and when people work.

Why was a bill needed?

In terms of content it was expected to contain a number of critical measures that would extend and protect workers' rights and create a Single Enforcement Body to tackle abuses in the labour market.

Some labour market experts hoped it would look to the future and provide further guidance on flexible working policy as well as regulation of umbrella companies that are used by thousands of companies to pay Britain’s growing contingent workforce.

This last point had become more heated through the pandemic, as the ‘holiday pay scandal’ broke. Thousands of people paid via a third party umbrella rather than the company they carry out the work for, missed out on holiday pay that was rightfully theirs because of employment law loop-holes.

But overall, it’s exposed the very complex labour supply chain Britain now has as a consequence of so called ‘off-payroll’ reforms.

To provide some context, the reforms were brought in by HMRC to recover lost tax. In effect they stop companies and public sector organisations from using the tactic of creating a ‘disguised employee’ whereby they hire people as a contractor to do a job that should be done by a full time employee. In doing so they avoid paying employment related taxes worth billions to the Treasury annually.

But what’s this got to do with umbrellas?

It’s all about risk. Meeting the reform compliance isn’t always easy, especially if you are one of the country’s largest employers of contingent workers. In some cases deciding not to work with contractors has been the easier decision – at least in terms of compliance that is. There is of course a huge downside and that is the lack of operational flexibility you trade off with such a decision.

Why is this?

Companies use a contingent workforce for a number of reasons. Firstly they do it when they are growing rapidly. If you can’t accurately predict whether you will need the skill at the end of the year, in many cases it is better to hire someone on a temporary basis.

We see this across the market from warehouse operatives managing online sales orders to IT contractors who are putting in the IT systems needed to deliver online services. A very relevant example are the track and trace teams set up as a temporary workforce in the pandemic.

Using flexible skill in this way is a particularly prevalent tactic after a recession. In fact, looking back over the last 20 years, after every economic crash a clear sign of recovery is a growth in the population of flexible workers.

The other reason companies use flexible skill is because there’s a finite use for it. So while they might need an abundance of labour to grow, they might need a very niche skill to deliver operational change, one that makes no sense to have on the books permanently, or they might need to cover a role while someone is on an extended period of leave.

If your company is dependent on flexible skill then you must either commit to complying with every inch of the off-payroll reform or find someone who runs an ‘umbrella’ company to help you do it.

In this case, the umbrella sits between the employee and the employer and pays the wages. The employer pays only the supplier – the umbrella – and the umbrella pays the employee and looks after legal entitlements such as holiday pay. Around 600,000 people are paid this way.

So what’s the problem?

There are some extremely well-run umbrellas in the market, but there are numerous ones, managing tens of thousands of workers, that are behaving unethically – withholding entitlements, skimming pay and, in some cases, also actively managing tax avoidance. The problem amounts to around £4.5bn in misappropriated money for the employee and HMRC.

The market is self-regulated and accreditation is available for compliant operators. However, it’s not working. Though some companies may be meeting standards of compliance and fulfilling their legal obligation, they are not fulfilling an ethical obligation because there is no law to prevent them. They have chosen to use gaps in policy to exploit workers to make bigger profits.

So what’s the answer?

We need to look at the bigger picture, and that’s the changing world of work. Fewer people want or expect a job for life. They value variety and the option to move from one sector to another, or from one profession into another, and even stop and start as necessary.

Jobs that help us manage life’s rich pattern are also of importance – the part time job to get us through college, the 9-5 to kick start a career, the three days a week to have more flexibility to support a growing family. The list of reasons as to why workers want and need choice goes on.

This was recognised by Matthew Taylor and the recommendations he made when he led an independent review into modern working practices for the government back in 2017. But in particular he expressed the need for all work to be good work:

“Good Work is shaped by working practices that benefit employees through good reward schemes and terms and conditions, having a secure position, better training and development, good communication and ways of working that support task discretion and involve employees in securing business improvements.”

However, as evidenced by the lack of employment bill this parliament, we have lost our way on creating ‘good work’ policies. As the ensuing umbrella debacle shows, employment rights have been side-lined in favour of the government’s steadfast tax policy.

Policy is standing in the way of change. But it must also be said that policy holds the answer too, provided we are prepared to take a bold approach. There is huge opportunity for Britain to become the case study for flexible working and lead on using contingent models to boost the country’s productivity. To do it we need departments to work together not apart.

If we take a complete view of the labour supply chain, the skills we need now and in the future and the working patterns we will see emerge as normal in the next 5-10 years then it’s possible to create regulation that provides workers with rights, employers with choice and options for growth, and HMRC with revenue.

We are not alone in this thinking or belief that it is possible. The Low Incomes Tax Reform Group, the Trade Union Council, Recruitment & Employment Confederation, Association of Independent Professionals and the Self-Employed, and the Loan Charge and Taxpayer Fairness APPG have all supported a policy we have drafted.

It is complex, of that there is no doubt. But it’s entirely possible and with some of the brightest minds and experts in Britain on the task, it is most definitely in our gift to make it happen. There is a growing urgency to do this. We must protect worker’s rights, we must ensure HMRC revenues are protected, but above all we must make our country the template for employment excellence.

Rebecca Seeley Harris is chair of the Employment Status Forum and former advisor to the Office of Tax Simplification, and James Poyser is CEO of inniAccounts and founder of offpayroll.org.uk. Together they have submitted a draft policy to regulate the umbrella industry to the Treasury and BEIS.