Recruiters beware umbrella companies risk

Warren Buffet famously said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.” In an industry continually under the spotlight, protecting your company's image and reputation and ensuring you are sending out the right messages are critical success factors. But in testing times and unpredictable conditions, is your Umbrella effective enough to protect you, or is their 'non-compliance' a threat to the reputation of your recruitment business?

When choosing which organisations to include on your Preferred Suppliers List (PSL), it is important to bear in mind that when doing so, you are effectively endorsing them to your clients. So you need to ensure that you only partner with businesses who are compliant, reputable and knowledgeable. After all, your reputation depends on what they do almost as much as what you do yourself.

The list below is not exhaustive, but it will serve as a guide to what are the most common areas of concern recruiters have when selecting which Umbrella companies to work with, which could negatively impact on your business if things go wrong.

Know who you are working with

Setting up an Umbrella company is relatively easy - it can be done with little financial outlay. So research the company, its people and their experience of working with businesses like yours. One Click Umbrella's senior management team has a wealth of industry experience and are also active members of All Umbrella Companies Are Equal.

Overarching contract of employment

The appeal of these contracts for employees is an obvious one. Rather than create a series of separate contracts of employment per individual assignment they work, an overarching contract of employment will encompass all assignments and ensure that the employee's tax and National Insurance contributions are kept up to date – regardless of whether they work various short term contracts for a few weeks here or a few weeks there. Ensure that the company you are using has such a contract securely in place, where the person you are hiring is a legal employee of that Umbrella – this will make them, not you, liable if the contractor's rights are infringed, and it will keep HMRC at bay too!

IR35

IR35 was introduced by HMRC in 2000 to resolve a £900 million loophole where individuals set up Personal Service Companies to gain tax advantages even when their working practices meant they were in effect “employees” and would otherwise have been taxed under PAYE. Contractors employed by One Click Umbrella, for example, are not affected by IR35 as they pay all contractors under the PAYE scheme.

Agency Workers Regulations (AWR)

Under the terms of the AWR, which came into effect in 2011, agency workers are entitled to the same pay and have the same basic employment rights after 12 weeks of continuous employment through an agency, as those employed doing the same role on a permanent contract employed directly by the hiring company. For instance, these 'basic' rights will include commission, holiday pay, overtime pay performance-related bonus. We would urge recruiters to undertake appropriate due diligence when appointing an Umbrella and ensure that the company adheres to the AWR.

Aggressive business models and 'offshoring'

Sadly, there are a number of Umbrella companies professing to be UK based but are in fact located off-shore – operating various schemes designed to avoid payment of tax in the UK. These schemes are normally backed by the opinion of “tax experts” and are often attacked successfully by HMRC. As a mainland UK-based provider, One Click Umbrella fully supports HMRC's campaign to rid the industry of off-shore operators.

There are also UK-based companies operating non-compliant schemes using the pay day by pay day model and disguising it behind third parties. Beware of any Umbrella company that says it can accommodate low pay rates – either close or at national minimum wage.

Your good reputation is key to the ongoing success of your business, so ensuring you know how your Umbrella company of choice operates is of paramount importance and will ensure that the reputation you have worked so hard to build remains intact.

If you have any concerns over an existing or potential Umbrella company, please speak to One Click Umbrella for advice.