We are being increasingly told by the umbrellas and the contractors themselves that this kind of arrangement is becoming commonplace and acceptable. I have been told it costs £3000 to enter into the arrangement and the umbrella will then also take a very large cut of the contractor’s hourly rate, which not only seems exploitative but also has implications under AWR.
My question is whether you are aware of this practice and what your view is in terms of its legitimacy? REC says it is dubious practice but don't offer further advice. The Borders Agency seem unable to understand what an umbrella company is when we have queried it with them.
Employment agencies and employment businesses
5.6 If you are an employment agency or employment business, you can apply for a sponsor
licence but only to sponsor migrant workers who will be directly employed by you in connection
with the running of your business. You can’t sponsor a migrant who you then supply to a third party
as labour, regardless of any contractual arrangement between the parties involved.
5.7 If you are an employment agency and we grant a sponsor licence to you on this basis, but
later find that the migrants you are sponsoring have been supplied as labour to a third party, we
will revoke your licence.
Taken from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/305304/Tier_2_5_Sponsor_Guidance_04-14.pdf
We have heard that some companies are claiming that they have a sponsorship licence but I think that it would be likely that, either they have no such thing or that it was acquired under a sham application.