Why should agencies care about ‘salary skimming’?

This is a guest blog by Fred Dures, Founder of PayePass

In recent years, the umbrella industry has never been far from controversy – whether it’s ongoing concerns over tax avoidance schemes or, as it has emerged more recently, allegations of ‘salary skimming’.

At its worst, skimming can be theft and so criminally culpable. Regardless, it’s an underhand, immoral and highly questionable tactic that can increase an umbrella’s revenue by many millions of pounds.

But what exactly is skimming? How does it happen? What risk does it carry? And how can agencies be sure umbrellas aren’t doing it?

What is ‘skimming’?

It usually involves an erroneous additional but unnecessary deduction of a small amount of money from a salary, hidden in a payslip calculation by adding it to a legitimate deduction. This additional deduction isn’t stated on the payslip; instead, it will be wrapped up as part of another. 

For example, £2 can be added to employers’ national insurance or any other deduction for that matter. Small beer? Not when it’s done systematically, thousands of times per week for many years! The skim will very often be hidden in the ever-controversial ‘employment costs’, which non-compliant umbrellas rarely itemise properly. 

What risk does it carry?

 The legality of some forms of skimming is up for debate. But there’s no denying that it’s completely unethical. In all industries – not least the umbrella industry which, as many of you will know remains unregulated – transparency is paramount. 

Although still to be proven in a court of law, several well-known umbrella companies have been called out in recent months. As a result, workers are on high alert. They are understandably wary about which umbrella company they work through. If the threat of operating via a potential tax avoidance scheme wasn’t enough, many are now contending with having their take-home pay skimmed, too. 

Agencies are advised to take this into account and undertake enhanced due diligence on all umbrellas they engage with. If an agency insists that their candidates use specific umbrellas, (such as those on a PSL) and one is found to have been skimming, they may find themselves liable if they have turned a blind eye to the risks of skimming or not undertaken proper due diligence. At the very least, being associated with a skimming umbrella will be commercially damaging.

How can agencies spot skimming?

The umbrellas skimming money from workers are clever about it. At a glance, it can be difficult to spot – which is the whole point. The money skimmed is deliberately hidden as part of another deduction.

To be sure that an umbrella company isn’t skimming and, in turn, is operating with integrity and compliantly, a rigorous payroll audit is required – one that tracks the full journey of the money paid to an umbrella and ensures no tricks, no unlawful deductions and no skimming is taking place.  

This should, in my opinion, be a prerequisite for recruiters engaging umbrella companies.