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Salary Skimming – What Impact Does Compliance Have on Payroll?

Salary Skimming – What Impact Does Compliance Have on Payroll?

by on November 14, 2022

With the shocking news that an umbrella company has been found to be salary skimming, here we look at this unlawful and unethical practice and ask what impact compliance has on payroll.


A damning exposé by Contractor Voice, an organisation dedicated to amplifying the voices of contractors throughout the UK, has found that one umbrella company, a long-standing member of the FCSA, has allegedly been ‘salary skimming’ for a number of years, to the financial detriment of its contractors. 

It is alleged the company has been systematically deducting an erroneous charge of £2 every week from around 8,000 of its contractors’ salaries under the guise of an ‘Employment Cost’. The amount the company is said to have ‘skimmed’ from its contractors over the course of at least 5 years is said to total more than £4 million. 

The allegations came to light after Contractor Voice asked an automated compliance solutions technology company, SafeRec, to forensically audit payslips from contractors who used this umbrella company.  

What is salary skimming?

Salary skimming – at best unethical, and at worst, illegal – involves adding hidden ‘costs’ to the charges that contractors pay to their umbrella companies. These disguised charges may only amount to a couple of pounds in each pay packet but, given the volume of contractors that some umbrella companies deal with each week, it can reap a significant reward for unscrupulous operators. 

It may also be difficult for a contractor to realise that they are being skimmed, given that the amount is both insignificant and hidden within other charges. 

Technically, salary skimming is theft.

In this particular instance, it appears that the umbrella company designed bespoke software to automatically deduct £2 from every payment made to contractors and disguise it as charges.  

It is also alleged that many of the victims of this scam were white collar workers such as doctors, nurses and other healthcare professionals, who were on the front line during the Covid-19 pandemic. And, while no one deserves to have part of their salary stolen regardless of the profession they’re in, it is in particularly bad taste to steal from those people who devote their professional careers to caring for others. 

The practice also results in a loss of revenue for HMRC, as affected contractors would usually have paid tax and NIC on the amount they have lost, so these allegations also impact the amount of revenue that the Chancellor of the Exchequer has to spend on the health and wellbeing of the citizens of this country. 

What impact does compliance have on payroll?

Despite the company in question being ‘experienced and fully compliant’ and FCSA accredited, it took the combined efforts of a number of suspicious contractors, an external auditor, and concerned recruitment agencies, to highlight these allegations – which they strenuously deny. The FCSA then became involved to alert agencies who dealt with the company and may have had it on their Preferred Supplier Lists. 

The FCSA code of compliance should guarantee that payslips contain a breakdown of any costs contractors have to pay. However, in this instance, the assessors may not have checked the calculations or were provided with false documentation. 

Given the scale of the umbrella industry – there are now at least 500 firms operating in the UK today – regulation has become increasingly difficult. This can have far-reaching implications on how contractors get paid, and severe repercussions on the agencies which rely on umbrella companies to fairly and accurately pay their workers.  

If the figures being provided to both agencies and contractors are not correct, and cannot be verified, it leaves the payroll sector in a precarious position and results in loss of trust as well as loss of income. 

Umbrella companies should be the face of compliance

Compliance must be the highest priority for umbrella companies in order to maintain trust between them and the contractors they serve.  

To reassure our members, Payme is not only FCSA compliant, but is also a member and an approved provider of Professional Passport, the largest independent assessor of payment intermediary compliance. This means that our procedures and software systems are audited regularly and comply with the very highest standards of propriety.

It is important to stress that this company has not been charged with any breach of regulations or conduct so far, but with agencies being advised to distance themselves from the company and contractors being warned about its dubious practices, many of its customers are leaving in droves. 

In addition, HMRC may yet conduct an investigation into a loss of tax revenue. What’s certain is that their reputation has been tarnished to the extent that it may never recover. 

Get in touch

If you’ve been affected by these events and would like to discuss transferring your umbrella to Payme, you can speak to one of our knowledgeable customer service staff members in the strictest of confidence on 0333 200 0845.