Off-payroll legislation was introduced by the Government as a means to challenge perceived non-compliance to the IR35 rules, by contractors operating their own limited companies. The result has been a significant increase in the number of workers who now operate through umbrella companies.
As recruitment agencies are a vital link in the contractor chain, it is imperative that they have procedures in place to verify the umbrella companies that their temporary workers are involved with, in order to avoid non-compliance.
In the first of a four-part series we examine the steps recruitment agencies can take to ensure that due diligence is both implemented and maintained.
Decide on your agreed umbrella provider list
The first thing that recruitment agencies need to consider is whether they use a ‘preferred’ supplier list or an ‘approved’ supplier list, or both. With many agencies now using both, it is important to understand the difference between the two.
Preferred Supplier Lists – in order to ensure that you’re working within the law, your Preferred Supplier List (PSL) of umbrella companies will have been checked and audited to review their working practices. The preferred supplier list is a shortlist of umbrella companies that would be actively promoted to workers, who do not currently have a relationship with an umbrella company or are new to contracting.
Approved Supplier Lists – ASLs are important as some of the key benefits for a worker operating through an umbrella company involve their entitlement to employment rights, pension rights and continuity of employment, which can assist workers in securing loans and mortgages. The workers are also often happy with their current provider, understand the systems and processes, and have built relationships with the team. Workers with strong existing relationships will often resist change to an alternative umbrella company.
An Approved Supplier List (ASL) will contain details of companies who, while you have researched and audited them, you do not actively promote to new contractors.
When you’re selecting your list of potential umbrella providers, a good starting point could be to speak to one of the recognised accreditation bodies available in the market.
Whilst these provide a useful reference, it is important to understand that choosing an accredited provider does not abnegate your responsibility to conduct your own due diligence. No accreditation standard is recognised in law, and the umbrella sector remains unregulated.
Professional Passport is the only compliance standard that has insurance backing. This provides additional protection for recruiters and/or end clients, as it covers potential legislative debts arising if Professional Passport has been negligent in its assessment of a provider’s compliance.
There are extensive lists of accredited providers, such as those that can be found here, on the Professional Passport website. The choice can be narrowed down according to the services that you require from them (payroll, umbrella, accountancy etc). After making your initial choice, a more selective list can be drawn up but should include criteria such as:
Checks with Companies House to confirm that the umbrella company is registered in the UK
How long has the umbrella company been trading?
What is the company’s credit rating?
What is its turnover?
What is its Balance Sheet Criteria?
It may take time to compile a list of providers who satisfy all your criteria and offer the services that you require, but the effort helps to ensure that your supply chain is as robust and transparent as it can possibly be.
If you are looking to work with an Umbrella company, visit the Approved Providers list from Professional Passport, the UK’s largest independent assessor of payment intermediary compliance. If you are an agency or organisation using or looking to engage with an umbrella company and need advice, please contact firstname.lastname@example.org.