Fair Warning

Tania Bowers, Legal Counsel and Head of Public Policy at APSCo discusses the danger signs of Umbrellas.

Following the roll out of Off Payroll rules in April, the subject of compliant umbrella companies has become a hot topic, with reports of non-compliant models increasingly being covered in recent months. While it’s a complex topic and any recruitment firm currently utilising an umbrella or adding a new one to their Preferred Supplier List (PSL) should ensure they seek guidance, there are a number of pointers that staffing companies need to be aware of to prevent engaging with non-compliant suppliers.


Due diligence needed

There are the general due diligence steps that recruiters should always follow, including checking their payment and expenses policies, verifying contracts of employment and regularly auditing contractor payments, invoices and payslips, amongst other things.

There are also a number of warning signs to be wary of, particularly if you are worried about disguised remuneration schemes. As a case in point, it’s more commonly known that if an umbrella is offering payment as a loan, grant or advance, then it’s likely that there is something unscrupulous going on behind the scenes. Anyone that is providing higher than expected take home pay is also likely to be involved in non-compliant employment processes.

The challenge, of course, is that fraudulent umbrella companies know what recruiters look out for and will often find a way around this. However, beyond the usual due diligence, there are other red flags that you can look out for – and indeed should seriously consider when looking at an umbrella solution as the government continues to seek a means of better regulating the temporary workforce.


The warning signs

One of the red flags recruiters should be aware of is the use of financial incentives for consultants. If a company is offering a significant reward for recruiters to introduce their business to contractors that is above the usual price of an umbrella’s weekly services, then there’s likely to be some underlying means of generating extra revenue, so be wary of those offering your recruiters a pay-off.

It is also important to keep an eye out for third-party sellers. As Crawford Temple, managing director of Professional Passport (the largest independent assessor of provider compliance), explained in an article, it is becoming increasingly common to see workers moved onto different models following an initial agreement with a provider that appears, on the surface at least, to be compliant:

“Many of these organisations seek to front their offering with an accredited provider to create a perception of compliance. Once leads are received, and where the individuals are looking for higher returns, they are often introduced to a different offering that, in our opinion, would not be compliant,” he says.

“These ‘high return’ models operate significantly higher charges whilst at the same time returning larger take home pay for the workers. Where compliant tax arrangements are used the take home pay from providers will be broadly the same, with the only variation being where the charge varies. This will only result in a few pence difference to the worker.”

There is also the issue of incentives paid to be added to preferred supplier lists. Compliance can’t be compromised by incentives. APSCo does have clauses in both its member and trusted partner codes requiring that any such incentives or fees, such as transaction fees, are appropriate, proportionate, and transparent – and our members are subject to a complaints process if a breach of code is reported.

Recruiters need to keep an eye out for ‘ghost’ umbrella systems. As Crawford explained, “In these arrangements providers seemingly operate compliant offerings with many workers engaged by a standard umbrella style arrangement. Contracts and evidence provided is from the compliant offering and so draws little concern. Behind this is a separate offering that is only offered to workers who express a desire for higher returns.”

“These non-compliant offerings typically fail to provide workers’ pay slips or other comms relating to the breakdown of pay so that these would have to be requested by the recruitment company directly from the provider. The examples provided do not reflect the reality of the arrangements and are designed to mislead.”

While these ghost schemes are difficult to identify, if you suddenly see an influx of contractors pushing to use a particular umbrella company then chances are there’s something motivating them financially that has the potential to be fraudulent or non-compliant.


Regulation needed

While the above should be used as an initial warning signal that an umbrella is operating unscrupulous tactics, the biggest change that needs to happen in APSCo’s view is robust regulation of the sector.

We have reiterated to government that the newly announced Single Enforcement Body (SEB) should support greater collaboration with HMRC to drive better, more appropriate regulation of umbrella companies, particularly in light of the roll out of Off Payroll. It is also crucial that the workers’ watchdog promotes strong supply chains with worker protection and a fair apportionment of regulatory burden and contractual risk. APSCo will continue to work closely with BEIS, HMRC – and collaborate with experts including Professional Passport and other stakeholders – to ensure regulation is appropriate and guided by the recruitment industry.

While the Single Enforcement Body is being established though, staffing companies should reduce the risks of non-compliant umbrella usage by utilising the knowledge of employment law and compliance experts and trade bodies such as APSCo.

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