Umbrella companies are vital to the recruitment industry

Guest blog by Sebastien Sauca, CEO & Co-Founder, SafeRec

With this statement alone, I can already hear some of you getting angry behind your screens. Let’s breathe, get a cuppa, relax and let me explain what I mean and where the problem actually comes from.

The reality is that today, whether we like it or not, Umbrella Companies play a pivotal role in the temporary recruitment industry. They offer a viable option to all contractors who are now inside IR35 as well as helping small recruitment agencies to exist. And there are a lot of them… over 80% of recruitment agencies are micro companies (under 10 employees)! Their existence is sometimes bound to outsourced payroll providers.

SafeRec launched the first AI that can audit any Umbrella Company and prove payroll has been processed compliantly and ethically each week. It also provides for the first-time precious insights into this industry that many claims to know but very few truly understand.

So where does the problem with Umbrella Companies come from?

“100% OF UMBRELLA COMPANIES CLAIM THEY ARE 100% COMPLIANT, 100% OF THE TIME”

Like every senior manager that worked in the same industry for too long, I keep repeating this sentence to every single agency I speak to.

When you think about it, it is true. It never happens an Umbrella Company cold calls you and says: “We are about 97-98% compliant but we use the odd tax evasion scheme now and then that puts your business at risk!”.

This is where the problem comes from! The issue is not the existence of Umbrella Companies itself but for a decade, we have all been promised guaranteed compliance but there was no way to check in order for us to be sure. So we trusted… and at times; we were wrong!

Besides, Umbrella non-compliance is only one side of the problem. The other side is Unethical practices – the recent revelation from Contractor Voice proving some Umbrella Companies retain contractors holiday pay is just one example.

This is for these exact reasons that today, promising Umbrella Compliance is not enough. Umbrella Companies need to step up and do better than “guaranteeing” compliance by going around flashing badges saying they have been “audited”. It has been happening for the past 10 years, we know it is not enough anymore.

And like it is always the case in our societies – a minority creates a mess for the majority. What makes it worst is that it lasts for over 2 decades…and becomes a pretty big mess.

Proving umbrella ethics and compliance

The great news is that we are done with the negative. I know it doesn’t seem there is much positive, but I promise you it is coming; bare with me!

So, if guaranteeing is not enough, what should Umbrella Companies do? What needs to happen?

We are now in the era of electric cars, robotics, AI, automation… It is time technology comes in and brings the level of transparency the umbrella industry desperately needs.

Now umbrella companies must PROVE ethics & compliance by bringing full transparency on what has been audited and how: To agencies, end clients and most importantly to contractors!

Automated, real-time, third party auditing is now a possibility. Regulation is great, full transparency is even better. Tax rules already exist, we need to prove to all parties in the supply chain they are being followed.

This is exactly what technology companies like SafeRec are doing: bringing live auditing into the marketplace for agencies, end clients, and contractors. Proving every week to each party in the supply chain the pay has been processed compliantly and ethically.

It's without surprise that Umbrella Companies out there support and use this level of transparency. When you know you do things right, being audited is not a fear but a formality:

Robert Sharp, the CEO of Orca Pay Group says that “The importance of forensic real time auditing cannot be understated. With every business needing to ensure that they are carrying out regular due diligence, as demanded by HMRC and the importance of guaranteeing compliance throughout the supply chain to protect against 3rd Party Debt Transfer and The Criminal Finance Act 2017, real time auditing protects the full supply chain”.

Drey Francis, the CEO of Compass Contracting explains “there is not one reason why any umbrella company should refuse to live audit its processes and payrolls. Technology is the great equaliser and any companies who shun from it clearly have something to hide”.

Real time auditing is the future, and it is coming that whether that we like it or not!

That being said, if you are old school, still using Windows 1995 and prefer mitigating the risks instead of being sure, don’t worry, I will have your back in my next blog posts about the Do’s and DON’Ts of Umbrella Compliance.

Conclusion

You might not think it is fair, but as a recruitment agency, payroll compliance is your responsibility. The era where dishonest umbrella companies were giving astronomic referral bonuses or rebates/kickbacks to agencies is over. Please be responsible, and audit your umbrella companies the way you should. Not only because it is the only way to protect your business from unlimited fines, but because you owe it to your contractors, they trust you.