As a recruiter, when referring your candidates to a payroll provider it is important to make sure they are operating in a compliant way. It can be tempting to refer your candidates to a payroll company that offers exciting incentives and high take home pay, however you should be aware that these companies are probably an offshore tax avoidance scheme. HMRC will hand out substantial fines to recruitment companies that are found to be using these schemes, or prison sentences to the directors. Here is some advice on what to look out for when looking for a payroll provider.
What is your candidates take home pay?
One of the easiest ways to spot a non-complaint payroll provider is by looking at the take home pay they offer. Many companies offer contractors over 90 percent pay retention, however if all UK tax laws and legislations are applied, a contractor will typically retain between 70 and 80 percent of their pay when operating through a limited company and 60 to 70 percent of their pay when using an umbrella company. Any company offering contractors 90 percent retention, are almost certainly offshore schemes. Referring your candidates to one of these could land your recruitment company, as well as your candidates, in serious trouble with HMRC.
Where is the payroll company based?
If it is difficult to find out where they are based it is most likely they are trying to disguise the fact they are based offshore and in a well-known tax haven. A typical tax-haven country would be the Isle of Man or Bermuda. While offshore schemes are not technically illegal, HMRC will backdate any tax bills where they believe a contractor has deliberately underpaid their tax and National Insurance Contributions. This could result in contractors having to pay back thousands of pounds without warning.
Are they accredited by respectable bodies?
It is easy for a payroll provider to say they are compliant, however it is important to look out for whether they are accredited by any respected organisations. For example in the Netherlands we are NEN 4400 and VCU certified for supply of sustainable and temporary labour services in the Netherlands. NEN 4400 is a quality standard for temporary employment business that sets requirements with regards to tax and social security payments, as well as the overall legitimacy of employment in the Netherlands. VCU certificate demonstrates our responsibility and diligence in ensuring the safety and health of our contractors and clients. In Germany we are a member of BAP (Federal Employer’s Association of Staffing Services) and apply the BAP/DGB collective agreement. This way we ensure that our employees are being paid according to tariff.
With so many payroll providers out there it can be difficult to decide which one to use and who is compliant. The best thing to do is do you research and ensure that the payroll provider you choose is compliant and legal otherwise you could face some devastating repercussions.