However, engaging with an umbrella can present some risk, and here we look at some of the common mistakes we come across that may expose a recruitment business to risks when working with an umbrella:
Working to an umbrella’s own terms
Using an umbrella’s terms can expose an employment business to tax and other liabilities. Government guidance for agencies on working with umbrellas refers expressly to the content of contracts, and setting standards and expectations for compliance is key. It is always preferable, wherever possible, to operate to your own standard terms, which clearly set out expectations and what is and is not permitted. However, if you do work to umbrella terms ensure that they have been thoroughly reviewed and all risks have been identified.
Using PAYE terms for CIS
Individuals operating through a PAYE umbrella should be employees or workers of the umbrella and have payments treated as employment income, usually with supervision, direction or control present. CIS is a different premise, the individuals are self-employed, may not have worker status and is a high-risk model for tax liability if there is supervision, direction or control present. A different form of contract should therefore be deployed.
Not having terms in place with the individual who works through the umbrella
If you engage only with an umbrella, you will still need to have terms in place with the individual relating to your work-finding services. If not, you are unlikely to be compliant with the Conduct Regulations. There are also likely to be commercial considerations that mean not having separate terms in place with an individual could expose you to risk. These are matters that are easily addressed using a work-finding services agreement, designed to ensure statutory compliance and protect your position.
Key Information Document (‘KID’)
Employment businesses are required to issue KIDs to all candidates, including those who will be supplied through umbrellas. Employment Business should never rely on an umbrella to issue a KID and failure by an employment business to issue a compliant KID will be a breach of the Conduct Regulations.
Group structures and brands/trading names
Many umbrellas operate group structures, with different legal entities for different models. Employment businesses should only make recommendations or referrals to the entity they intend to engage with, on which due diligence has been carried out and, unless agreed otherwise, who directly engages the workers and treat payment as employment income. Referrals to other models, or parties, could result in risk and potential tax liability.
These are some of the common issues that arise when working with umbrellas. Lawspeed has a wealth of experience in addressing the relationship between recruiters and umbrellas, whether concerning terms, risks, or compliance steps and we are on hand to help with contracts, reviews or advice. For more information on any recruitment or employment law matter, please contact us on 01273 236 236 or email us at info@lawspeed.com.
