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Crawford Temple, CEO and founder of Professional Passport on why the umbrella industry should take its lead from the financial services sector.

The last forty years have played host to a proliferation of legislation and regulation as government officials have sought, and some might say struggled, to keep up with the ever-shifting 21st century workplace. As a result, we have seen a raft of legislation introduced that has failed to address the underlying challenges that the umbrella sector is facing, namely non-compliance, transparency and enforcement.

Recently the Government announced that it was shelving its plans to introduce a Single Enforcement Body and the industry is also still waiting to hear the Government’s response to its call for evidence into the umbrella sector that closed a year ago.

Such lack of motivation and ennui serves to reinforce the Government’s lack of appetite to root out bad practices. Many industry commentators have called for regulation but I believe that regulation has to be supported by a robust enforcement regime. With the payment intermediary market amounting to something in excess of 1200 companies, this would be a significant investment. Adding these 1200 to the 30,000 recruitment companies that the Employment Agencies Standard Inspectorate already regulates would not work, as they do not have the resources to cover their existing remit. And, whilst I do not think that regulation is the answer, I do understand that it is the principle of regulation and what it is perceived to deliver is what I believe people are calling for.

The industry wants to hold someone accountable for provider compliance in the marketplace and protect workers from being hoodwinked into arrangements that ultimately lead to significant financial losses. And, I think that the financial services sector could hold the answer.

Financial Services hold the key

Within financial services there are networks and each network takes responsibility for the compliance of its members. Along with this responsibility they hold the risk of significant fines and penalties if they are not assessing and upholding strong compliance in their network. The network members also hold risks of fines and penalties if they fail to maintain their own systems.

This would result in a much smaller number of compliance networks which are individually responsible for their members’ compliance with all the associated risks that come with this.

This seems a logical first step as currently there are many companies relying on compliance accreditations that sidestep legislation and debt transfer liabilities which surely can’t be right.

With compliance moving up the agenda and many agencies relying on compliance accreditations I believe a new framework could be implemented in the umbrella sector with the rules easily adapted from the Financial Services sector.

The concept is simple:

1. Compliance accreditation bodies are responsible for the compliance of their members and where one fails, and adequate steps have not been taken, then you could be held liable.

This would significantly increase costs to providers as the current regimes would have to adapt considerably but the increased opportunities outweigh the increased costs.

2. Supply chains could either rely on the compliance standards knowing that due diligence has been carried out or conduct their own diligence. Where a supply chain has carried out its own due diligence, it would assume the role of the compliance network with associated liabilities and many of these are already in statute.

If recruiters took any payment from payment intermediaries, they would assume joint liability with the compliance network.

This would be a significant change and provide a more level playing field across compliance networks and their members.

It would also assist in enforcement as many of the 1200 payment intermediaries would be operating under a compliance network. Those not wanting to operate through a compliance network would be required to register directly with the enforcer, possibly EASI.

It would also allow for a framework of some sort of compensation scheme to be developed with all providers required to input based on their turnover. This would help workers when they suffered losses.

But, to make such a concept work in practice, HMRC and BEIS would have to work closely with the networks and establish a clear framework of operational processes, most of which already exist on an informal basis. At the same time, it would also align enforcement with the standards and ensure a far more robust and joined-up approach.

It may be a bold suggestion but, with no alternative solution on the horizon, it is certainly worth exploring. Building relationships with responsible providers to fully understand the challenges is a must – only then can we tackle the issues that continue to plague the umbrella industry and explore some sensible options to build a sustainable and compliant sector fit for the future. If we don’t find a workable solution then non-compliant and illegal practices will continue to thrive and the UK economy and Treasury can ill afford the £1 billion in lost revenue that the malpractice is currently costing.

Crawford Temple is CEO and founder of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance. You can find many useful articles and videos on the Professional Passport website in the Hot Topics section .


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