The new Make Work Pay consultation establishes much-needed protections for workers, but has it got the balance right for recruitment agencies and umbrellas?
Last month the Department for Business and Trade (DBT) published a consultation document that aims to map out a fairer and more transparent approach to rules around agency work.
The snappily titled document – Make Work Pay: Modernising the Agency Work Regulatory Framework – acknowledges that current rules governing the relationship between recruitment agencies, umbrella companies and contractors are outdated and no longer fit for purpose.
Most of those who work in the sector would agree that the law is long overdue an update.
It’s a long and involved document and certainly no page turner, but suffice to say its priority is worker protection. The main themes that recruitment businesses need to be aware of include:
- Security of payments
- Transparency around rates
- Choice of employment model
At first glance the consultation document seems entirely reasonable, but the devil can be in the details. In the rest of this article we’ll discuss what the government is aiming to achieve, what it might mean for recruitment businesses, and what agencies should do now.
A note on JSL
The consultation has been published by the DBT. With employment rights forming a central pillar of the government’s legislative agenda, any laws that emerge from the consultation might be expected before the end of this parliament, and possibly as early as 2027.
At the same time, it’s worth noting that new laws around joint and several liability (JSL) come into force on 6 April this year. JSL is an initiative of HMRC rather than the DBT and will significantly impact the labour supply chain. The two departments don’t always join the dots. As we note below, in some areas potential Make Work Pay laws overlap with JSL in ways that could be counter-productive
1. Always paid
There are three key areas where suggested Make Work Pay legislation impacts recruitment businesses. The first is in the area of worker pay. The document stipulates that workers must be paid in full by the umbrella company that employs them, even if the agency hasn’t paid the umbrella.
So far, so what? The idea that workers should be paid fully and promptly for the work they do is hardly controversial. It’s difficult to imagine anyone in the industry having an issue with the general thrust of the proposal.
But – perhaps predictably – it’s not quite that simple. By solving one problem, the proposed rules could easily create another.
“Nobody disagrees that something needs to be done to protect workers in this area,” says Ryan Dawson, IR35 Project Manager at Kingsbridge. “But problems could arise if the other party – in this case the umbrella company – genuinely doesn’t have the money to pay the worker (or worse, HMRC) because of mistakes or issues elsewhere in the supply chain.”
Money flows down complex labour supply chains from the client to the recruitment agency to the umbrella or umbrellas. The umbrella then pays the worker. If there’s a payment delay at any point in the chain, an umbrella company operating on tight margins could quickly find itself in serious trouble.
That, in turn, could have serious consequences for the recruitment agency because of the overlap with JSL. If the umbrella can’t pay the tax and National Insurance (NI) of its workers alongside their pay, JSL makes agencies liable for the debt.
Again, nobody argues that worker pay needs to be protected. But the overlap of potential new Make Work Pay rules with JSL could put both umbrellas and agencies on the hook for problems caused by a late paying client.
2. Advertising gross rates
The government wants to protect workers from umbrella companies’ use of “assignment rates”. That means workers are offered a rate at the start of an engagement that bears little resemblance to the amount they find in their pay packets at the end of the week, after various costs and deductions have been taken out.
Instead, the proposals demand agencies offer a “gross rate” – effectively the PAYE rate – which would more accurately reflect the amount workers actually receive.
This not only provides pay transparency for workers, it would also drive competitiveness in the industry, and potentially push down costs.
Workers could accurately compare what umbrella companies are offering in terms of pay and other benefits, and umbrellas would have to justify their fees and deductions. Fully informed workers make more informed choices.
“It’s hard to argue that there isn’t a need for this kind of payslip transparency, which would stop umbrellas advertising overly attractive rates that don’t reflect the reality of what a worker actually receives,” says Ryan.
For recruitment agencies, the challenge here may largely be an administrative one. An agency’s ongoing due diligence would include the need to check that umbrellas on its preferred supplier list were offering accurate and transparent gross pay rates.
3. No mandatory umbrella
Finally, the proposals aim to outlaw the practice of agencies forcing workers to use an umbrella company. If they become law, offers of work could no longer be conditional on contractors signing up with an umbrella.
The proposals create choice for workers, and the government clearly hopes the new rules will also force bad apples out of the labour supply chain. If workers don’t have to sign up with an umbrella company, umbrellas will have to offer compelling reasons for them to do so, perhaps in the form of competitive in-work benefits and protections.
In other words, umbrellas will survive on service and cost, and not – for example – by offering attractive commercials to recruitment agencies for worker referrals. The widespread use of “kickbacks” will no longer be viable.
Getting the balance right
Nearly everyone agrees that workers need protection and that labour supply chains have become far more complex – and far more opaque – since the current laws were enacted.
The question is whether the consultation document gets the balance right – or takes aim at the right targets. Good umbrellas make the labour supply chain more efficient and help recruitment agencies with heavy lifting they don’t want to do. Late payments to workers are often the fault of end clients rather than supply chain participants.
Worker protections certainly need to be updated, but the costs for recruitment agencies and umbrella companies could be high.
We’re still at the consultation stage and legislation is some way off. For now, we’d strongly urge recruitment businesses to make their voices heard.
Use the consultation to tell the government about the positives in the document and where proposed changes fall short. Talk about potential impacts on your business and on the temporary labour supply chain more widely.
Alongside JSL, Make Work Pay legislation promises to add up to a seismic change for the industry. It’s down to the sector to stay informed, have its say and help create a fairer and more transparent labour supply chain for everyone.
Getting support with legislation
Navigating legislation and ensuring compliance can be challenging for recruitment companies, end clients and contractors alike. The best thing you can do is speak to your supply chain, understand your risks and then you’re in a better place to navigate your responsibilities.
If you’re still unsure or are looking for an expert to talk to, Kingsbridge can offer guidance on compliance strategies, and risk mitigation.
Speak to the Kingsbridge team – they’ll be more than happy to answer your questions.
