Last year, Orange Genie, an FCSA-accredited umbrella company, was accused of salary skimming – a practice where an umbrella unethically retains more than its margin, and employees are left out of pocket. On the back of an investigation, the FCSA suspended Orange Genie for six months. On Friday, 5th May 2023, the FCSA received the final findings of its Independent Arbitration Panel (IAP) regarding the membership status of Orange Genie. Please keep reading for more information about the IAP’s conclusions and a summary of the investigation from the beginning.
Before we summarise the findings of the Independent Arbitration Panel (IAP) regarding the membership status of Orange Genie (released on Friday, 12 May 2023), we have provided an overview of the salary skimming allegations – from the moment they first came to light – to the initial responses from the FCSA and Orange Genie. Scroll down for more information about the background of the story. To read the latest developments, please skip to the heading entitled Developments in May 2023.
Orange Genie – why were they accused of “salary skimming”?
“Contractor Voice announces that Orange Genie, an FCSA member for over 10 years, has been unlawfully and systematically taking money from contractors, week in, week out for many years.
The evidence collected by Contractor Voice is so clear cut, demonstrating the intention of Orange Genie to skim from the salaries of its contractors, that we urge the FCSA to remove them from its list of members without delay; all contractors employed by them should find a new umbrella, and all agencies to stop working with them for the benefit of contractors.”
Further evidence was provided:
“Unbeknown to contractors, £2 per week has been incorrectly deducted and disguised on the payslip in the deduction called “Employment cost, including Employer National Insurance.
This deduction is consistently equal to the employer national insurance and a £2 additional masked deduction, which is invisible to contractors.
The FCSA code of compliance clearly requires that “the pay reconciliation you [the umbrella company} provide to the employee transparently show an itemised breakdown of all employer costs, including but not limited to the Apprenticeship Levy.” (FCSA Umbrella Employment code of compliance, A17, page 9) No doubt the aim is to give comfort to contractors that the individual elements and calculation are correct. However, none of the Orange Genie payslips that we have seen and audited include an itemised breakdown of the hidden £2 and only becomes visible following a payslip audit.
Given the scale and years of skimming, Contractor Voice believes that investigating authorities must take a very close look at the Orange Genie payroll software as it will have been impossible to skim on this scale without bespoke software involvement.”
Orange Genie denied any wrongdoing
In an exclusive interview with IWORK, Orange Genie’s CEO, Paul Bresnihan, answered questions about the FCSA’s investigation and denied any wrongdoing. When challenged about the £2 salary skimming allegations from every umbrella payslip processed by Orange Genie, Paul Bresnihan said:
“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.”
IWORK asked whether such a deduction was unlawful. Paul Bresnihan replied by saying:
“No, it is not unlawful because this is not deducted from employees’ income. This amount is an overhead cost that we retain from the assignment rate as I’ve just mentioned.
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, insurances 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. We do that because our income is based on receiving an assignment rate for the work the employee is carrying out (paid to us by their recruitment agency), and the amount we pay our employee is directly related to the amount we receive, so it makes sense to ensure that the amount we retain is sufficient to for us to cover all expenditure incurred per employee.”
How did the FCSA respond to the allegations of salary skimming against Orange Genie?
Coming into effect on 11 November 2023, the FCSA handed Orange Genie a six-month suspension. In a news article on the FCSA’s website, the decision to suspend Orange Genie was explained in more detail:
“Following the receipt of the Independent Arbitration Panel’s decision regarding Orange Genie’s appeal against termination of their membership by FCSA, we today confirm that Orange Genie have been suspended from FCSA membership for a period of six months for breaches of our Umbrella Code relating to transparency in listing all deductions made from assignment rates. Our original action of terminating Orange Genie’s membership has not been upheld by the IAP.”
Developments in May 2023
On Friday 12th May 2023, the IAP’s determinations into the membership status of Orange Genie were released publicly. More information is below.
Independent Arbitration Panel (IAP)
The IAP’s review is explained in more detail on the FCSA’s website:
“Orange Genie followed the process to appeal to the IAP in October 2022. From the outset, it was agreed by all parties to accept the IAP’s findings in full. Following a hearing, the IAP – which was asked to examine only the breaches of Umbrella Code articles A3e and A17 – issued non-binding recommendations in November 2022 that Orange Genie paid an immediate fine, took remedial action and was suspended from FCSA for six months whilst they worked to remediate Code breaches. FCSA accepted these recommendations in full.
Following these measures, and the submission of two independent reports, by BDO on behalf of FCSA, and by MHA Baker Tilly on behalf of Orange Genie, the IAP has determined that whilst Orange Genie historically were not transparent in their deductions, the IAP is content that Orange Genie is now compliant with Articles A3e and A17. The period of suspension ended on 11th May 2023, but Orange Genie’s FCSA accreditation lapsed on 31st March. Should they decide to reapply for FCSA membership, Orange Genie will undergo a full re-accreditation assessment. During this period, Orange Genie will not be accredited by FCSA until they have successfully been assessed against the current membership criteria.
Since the incident in question, and following the IAP’s observations and resulting recommendations, FCSA has further strengthened its disciplinary procedures and has acted as requested to mitigate against the prospect of a recurrence of a breach of Articles A3e and A17 by any member going forward. FCSA randomly samples payslips, verifies them using third-party software and compares the output to the RTI returns made to HMRC by members. We do this on an ongoing basis and will continue to do so.”
What did the IAP determine?
In a letter sent to Chris Bryce (CEO of the FCSA) and Paul Bresnihan (CEO of Orange Genie), the Independent Arbitration Panel (IAP) has given its final determination regarding the membership status of Orange Genie. The letter, sent in April but embargoed until 09:00 on Friday 12 May 2023, outlines the IAP’s findings and conclusions on the back of a review.
Regarding the FCSA’s decision to suspend Orange Genie, the letter stated:
“The IAP’s task in the appeal and this review was to look at the breaches of A3e and A17, whether the procedure was followed correctly by the FCSA and whether the termination was a proportionate response.”
Following this, The IAP answered four questions raised once the six-month suspension (Orange Genie) was complete. The questions and responses are stated below.
Question one – “Has Orange Genie paid the fine?” The IAP responded:
The FCSA has reported that the fine was paid by Orange Genie immediately after the appeal meeting in November 2022.
Question two – “Has the FCSA issued updated industry guidance on so-called ‘salary skimming’?” The IAP responded:
The FCSA reported that they are carrying out a review on unlawful deductions of wages with a view to improving awareness across the industry. The IAP felt that this question needed further examination and would be part of a separate review.
However, the IAP were content that the deduction of the £2 charge was not ‘salary skimming’ or, in correct legal terminology, an unlawful deduction of wages. The £2 charge was deducted from the assignment rate and was never deducted from the gross pay. It is not, therefore, an unlawful deduction of wages, in line with recent case law Zajota v. Umbrella Company Ltd  ET 2210575/22.
Question three – “Has the FCSA made amendments to the Umbrella Code?” The IAP responded:
The IAP again felt that this question needed to be dealt with in a separate review but, were pleased that the FCSA reported that a draft amendment to the Code had been produced.
Question four – “Has Orange Genie reached compliance?” The IAP responded:
Orange Genie fully accept that they were in breach of the Umbrella Code A3e and A17 at the time that the sanctions were enforced by the FCSA.
Orange Genie now report the following:
The £2 charge is now accounted for separately in the payslip and is shown as part of an itemised breakdown. Orange Genie reported that this had been carried out in October 2022.
Orange Genie has also added a clause to the Contract of Employment to make it clear that a £2 charge is made and what that charge is for, although this is not specifically required by the Umbrella Code.
The Key Information Document now also shows the deduction under the umbrella fees and not the worker’s gross pay.
Orange Genie commissioned a report by MHA Baker Tilly to answer the following questions:
- Whether operation of the £2 costs which gave rise to the FCSA Code breaches were compliant under Employment tax and / or Employment law legislation?
- What steps had been taken by Orange Genie to address these issues? and
- Whether Orange Genie’s current overall processes and procedures were compliant with Employment Tax and Employment Law?
It was reported to the IAP that the deduction of the £2 charge was compliant with both Employment Tax and Employment Law. It was also reported that the deduction of the £2 charge did align with HMRC Guidance and based on the review, MHA considered that the steps taken by Orange Genie have now strengthened compliance.
The FCSA also commissioned a report by BDO and that report stated that the deduction of the £2 charge was permissible under Employment Tax. The BDO report also reported that from an employment tax perspective, there would be nothing due back to the worker as the cost was deducted from the assignment rate.
The IAP are content that the steps taken by Orange Genie are now compliant with both code A3e and A17.”
Additional comments from the IAP
Following on from the questions, the IAP comment further on Orange Genie’s compliance:
“The IAP have found that Orange Genie are now compliant with A3e and A17 and that is the extent of our remit. The question of whether Orange Genie are re-admitted as a member will depend upon the FCSA’s criteria for joining. Orange Genie would need to be eligible and independently tested by an FCSA-approved Assessor, as with any other potential member.”
The IAP conclude by commenting on future breaches:
“We would like to make it clear that this has been an unusual case. Suspension of membership, rather than expulsion, may not have happened had the FCSA Umbrella Code and Disciplinary Procedures been more robust at the time. The FCSA are in the process of putting in place amendments to both, so breaches to their codes in future will be treated in accordance with the new procedures.”
Please click here to read the full letter sent to Chris Bryce and Paul Bresnihan.
How have the FCSA and Orange Genie responded to the IAP’s determination?
“We accept today’s determination, and acknowledge that Orange Genie have met the remediation requirements recommended by the Independent Arbitration Panel following Orange Genie’s breach of Article A3e and A17 of our Umbrella Code of Compliance. Whilst FCSA have not been given sight of the report from MHA Baker Tilly commissioned by Orange Genie, we accept the IAP’s view that it draws much the same conclusion as the report submitted by BDO.
Should Orange Genie decide to reapply for FCSA Accreditation, we wish to emphasise that any re-admission to membership of FCSA is dependent on a successful outcome to the process of re-assessment.
We have no doubt that members, along with the whole industry, will welcome the action FCSA have taken to reinforce our requirements for full transparency and openness for workers engaged by our members.”
Paul Bresnihan, CEO of Orange Genie, said:
“We are delighted with the IAP’s decision and were always clear that there was no deliberate wrongdoing by ourselves. We regret the oversights that led to breaches of the FCSA code, and we made changes immediately once we were notified of them. New processes have now been put in place by the FCSA and we’re pleased to have been of help in facilitating this process of improvement.
We are dedicated to upholding standards of compliance within the industry and are happy to be challenged on all of our processes. The best interest of our contractor employees is at the heart of everything we do, and we welcome this opportunity to improve transparency for them.
“At great expense we sanctioned an independent report from Baker Tilly which we are happy to share with any of our agency partners. This report confirms that Orange Genie operate within employment and tax law.
“Unfortunately, we did not see the BDO report, but we understand the findings were in line with the Baker Tilly report, further cementing that Orange Genie were always fully compliant with employment and tax law.”
Top 10 umbrella companies
If you are new to contracting and require the services of a compliant and efficient umbrella company – we have just the resource you’re looking for. Our top 10 umbrella companies are accredited by either the Freelancer and Contractor Services Association (FCSA) or Professional Passport, and some have special offers at the moment.