A Roadmap to Compliance for Agencies

This is a guest blog by Chartergates Audit Services

Engaging with Umbrella Companies: Part Two – Contractual Integrity

In the second instalment of this series, we are going back to the basic and most fundamental aspect of engaging with umbrella companies, i.e. the integrity of the contractual chain. 

There is a lot of material being published regarding the risks agencies face when using non-compliant suppliers.  However, there seems to be a void when it comes to stating what that risk is, or under what legislation liability can pass to the agency.  

We understand that agencies want to ensure that any worker it supplies to the hirer has been treated correctly and auditing payslips is a good starting point.  However, failure to operate PAYE correctly rests with the employer (i.e. the umbrella company) unless of course the contractual chain has been undermined and the agency brought into the picture.

Undermining the Integrity of the Contractual Chain: Agency Risk

An umbrella company is not merely a payroll bureau and should be contracting with the workforce which in turn is being provided to the agency for onward supply to the hirer. Where this is not done,  then there is a very real risk of that workforce being considered directly engaged or employed by the agency.  As such, it is the agency that may find itself face-to-face with HMRC or in an Employment Tribunal defending itself against claims made by workers who were supposed to be employees of the umbrella company!   

Roadmap to Compliance

Our roadmap to compliance when considering the contractual chain includes the following:

1.      Supplier Contract: All agencies will have contracts in place with the hirer regarding the recruitment services to be provided.  However, there seems to be more leniency when it comes to agencies agreeing terms with umbrella companies.  All agencies should ensure that there are always tailored written terms in place with its suppliers including umbrella companies.   

2.      Appropriately agreed contracts between the workers supplied and the umbrella company: Although the agencies would not directly contract with the employees of umbrella companies, when undertaking due diligence on the supplier, sample contracts should be sought to confirm that the contracts of employment between the umbrella company and its employees are appropriately agreed and make their employment relationship clear.   

3.      Look Inward: Whilst it is  It is crucial that agencies audit suppliers  within the contractual chain for  compliance, they must also carry out an internal audit. As part of this,  they should ensure that any contracts  agreed with workers prior to the worker’s engagement with an umbrella company has been effectively terminated  avoid any  ambiguity about the entity engaging the workers and any residual liability.

Monitor and Safeguard your Compliance by RISC® Accrediting the Supply Chain

At Chartergate Audit Services, our commitment to compliance is unwavering. Through our RISC® Accreditation programme, we conduct random and unannounced audits throughout the year, ensuring that umbrella companies uphold rigorous compliance standards thus reducing the risk to agencies.  We review contractual terms, check that they have been appropriately agreed between the parties, and undertake integrity checks.  Requiring your umbrella company suppliers to be RISC® Accredited will ensure the risk to you is mitigated.