Support services group calls on subcontractors to employ direct labour and avoid use of 'composite companies'.
Support services group Jarvis is cracking down on contentious labour agency practices in the wake of the Potters Bar rail accident in May.

It is keen to stamp out the practice by which agencies form "composite companies" for workers, enabling both the employer and employees to avoid paying tax and National Insurance.

Jarvis has held talks with labour supplier Vital Resources about the issue and has made it clear that it wants specialist labour suppliers to engage full-time employees wherever possible.

Unions have claimed for some time that such schemes set a bad example and encourage poor standards. Bob Blackman, national construction officer at union T&G, said: "This system is a complete sham and there are also safety implications because a lot of the time workers are not trained properly. Safety and training must come hand in hand." Paul Corby, construction officer at electrical union Amicus AEEU, estimated that there were about 10,000 workers in the construction industry using composite companies.

He said he had twice met Treasury officials about the issue and was now having to negotiate with composite companies, rather than real employers, over industrial relations agreements.

Unions object to the schemes because, although legal, they reduce the amount of money that goes to the Treasury and can then be used for training, health and safety and other requirements.

A Jarvis spokesperson said: "All of our subcontracted labour is required to have been trained to recognised industry standards. Jarvis has been working with its specialist suppliers for some time to raise competence to the level required by our staff." Under a composite company scheme, operatives form a limited company to avoid paying PAYE income tax and Class 1 National Insurance. They instead receive the bulk of their pay as dividends. The contractor that engages them benefits, as it can avoid paying employer's National Insurance contributions. The Inland Revenue was unavailable for comment on the practice.

Composite companies: Who benefits? * A construction worker who joins a composite company becomes a partner and is paid from dividends made by the company. He or she is able to avoid paying full Class 1 National Insurance contributions and income tax.

* The contractor that engages partners in a composite company also benefits, as it is no longer required to pay employer's National Insurance contributions. The contractor also enjoys the advantage of having a large group of mobile labour, which can move from project to project without filling in tax forms.