Salary skimming: whose money is actually being deducted?

This article has been updated.

OPINION

While not all Freelance Informer readers are contractors or umbrella company workers, many are, so they will be interested to know that “salary skimming” has no definition in the FCSA’s codes of conduct.

For those of you who are not aware, the FCSA is the body that does the “checks and balances” on umbrella companies to ensure they are legitimate and not using underhanded accounting and tax practices.

Initially reluctant to speak up, an FCSA insider told contractor news site ContractorUK that there was a “problem” in the recent payroll audit investigation of umbrella company Orange Genie which has been accused of alleged salary skimming.

The source told the publication that while the £2.00 deduction was proven in the investigation, ‘salary skimming’ was not.

Confused? Me, too.

The report said, “Salary skimming has no definition,” said the insider, referring to the association’s many codes, guidelines and charter being absent of such a term or outlined practice.

“Technically, if it’s the ‘assignment rate’ that the £2.00 deduction comes out of, and if it’s never actually paid by the worker out of the worker’s wages, then it isn’t ‘salary skimming.’”

This sounds like a loophole to me. One that some umbrella companies knowingly are using to divert funds from a paying source, yet to be defined.

This bears the question, if money looks to be deducted, diverted or “skimmed” who is “paying for it” (or owed it) in the first place if not the contractor? Is it the end client? The recruitment agency? And if an umbrella company using this diversion of funds were audited, what would the funds be called on their books? The weekly hocus pocus incentive fee?

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“We made a lawful deduction”

Orange Genie’s CEO Paul Bresnihan, explained to Julia Kermode of iWork, why this £2 existed, but many contractors will remain confused as to why this is coming out of the assignment fee given they already pay fees to be on the Orange Genie payroll.

When Kermode asked Bresnihan about the allegations made about the umbrella company “skimming” £2 from every umbrella employee payslip and whether skimming was involved this is how he responded:

No, absolutely not.  We have made a lawful deduction of £2 from the assignment rate to cover the part of our employment costs that enable us to provide our employees with access to an online portal that contains their payslip and pensions information as well as access to other benefits such as an online doctor, counselling services and high street shopping discounts. 

The £2 is shown within “employment costs” on our reconciliation statement of assignment rate to gross pay and is clearly shown above the line before our employees gross pay is calculated.

The umbrella CEO explains to Kermode that the £2 is not an unlawful deduction from umbrella employee income because “this is not deducted from employees’ income. 

“This amount is an overhead cost that we retain from the assignment rate… The assignment rate is made up of our employee’s gross pay plus our costs of employment such as holiday provision, employers’ NICs, apprenticeship levy, pension contributions, our payroll staff, office costs, insurance etc.

“All of these are the same overhead costs that any employer incurs, the only difference here is that we have apportioned our costs into an amount per employee,” says Bresnihan.

He admits: “We did not seek to hide the £2 cost, however, we also didn’t provide a breakdown of “employment costs” and perhaps we should have.”

 The £2 was also not considered income because Orange Genie is “invoiced” by their “supplier at the rate of £2 per employee per week.” 

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Is anyone else getting a vision of some umbrella companies playing the balls and cups magic trick on contractors (AKA the umbrella company’s employees)?

I am calling out all tax and legal experts and accountants that can explain how any company can charge their customers or clients something and not verify or justify it.

And if found that alleged deductions or diversion of funds were made under any false pretences, what does the law say about that? And who should be claiming those diverted funds and why?