Can a Recruitment Agency Mandate the Use of Certain Umbrella Companies?
As IR35 approaches more contractors are seeking the services of umbrella companies throughout the UK. For the most part, umbrella companies are suggested to contractors from the recruitment agency associated with their relevant assignment. This is an attempt to help the contractor speed up the signup process reducing the need for due-diligence checks between the businesses and ensuring everything is complete before the crucial first payment.
Umbrella lists provided to contractors usually take the form of a PSL (Preferred Supplier List) or an ASL (Approved Supplier List). A PSL generally consists of umbrella companies that have proven that their operations and compliance standards align with those expected by the agency, other aspects such as weekly fee or benefits may be a factor also. An ASL is very similar, the difference is that the agency is not suggesting that they have a preference towards any particular umbrella – they have simply approved the use of any company on this particular list (again based on compliance checks). ASL’s tend to have more choice then PSL’s.
There are agencies who leave the choice of umbrella entirely to the contractor – this is a far less structured approach, but when the legislation is taken into account, it’s actually the correct one.
Is an agency able to mandate that you use an umbrella from their PSL/ASL for your contracting?
The simple answer is, no. “Preferred” and “Approved” hold vastly different definitions than mandated or exclusive.
An umbrella company is essentially a service that is paid for by you, the individual. As with any purchase that you make with your own income, you have choice and free-will as to what services you engage based on your personal preference. An agency can suggest a list of umbrellas to you, but they cannot dictate nor mandate that you use one of them. Providing an umbrella company can evidence that they are operating in a legitimate/compliant manner to the agency then there is no reason that they should reject the request.
Some agencies lean towards umbrellas that demonstrate certain levels of certification. Again, they cannot mandate that you share their vantage point but, they may use certification from certain bodies as a standard benchmark for being included on their PSL/ASL. This is an understandable approach – regulated accreditation provides reassurance and proof of integrity, the problem is that there is currently no regulated accreditation for umbrella companies.
At present, there are a couple of large, privately-owned “certification bodies” in the industry, but they are unregulated by the UK’s accreditation body UKAS, so there is an argument that the certifications can only be viewed at face value. These large “certification bodies” are usually commercially driven and can lack the impartial auditing processes many companies look for in industry benchmarks. It should be noted that when any company (Including umbrella companies) becomes large enough (based on turnover) they must undergo a yearly audit in line with government requirements – often this audit produces the same result as the large certifications.
Which bits of legislation can support you if you want to argue your case to an agency?
The Conduct of Employment Agencies and Employment Businesses Regulations 2003.
Regulation 5 prohibits an employment business making the provision of work-finding services conditional on the use of a service provided by the agency or any person connected to the employment business (by a director or someone who has influence over the company). It goes on to say that the candidate should not be penalised by the employment business if they decide to leave the company supplying services they are with (provided proper notice of 5 working days is given).
Simply Put: There is an argument that an agency risks breaching these regulations if they refuse to let you use an umbrella company of your own choice and an agency cannot terminate your assignment or withhold payment from you if you do decide to leave the umbrella company you are currently using.
Regulation 8 prohibits the agency from signing the candidate up to a service without their knowledge or consent as well as preventing the agency referring the candidate to a service which is connected with the agency (by a director or someone who has influence over the company).
Simply Put: The contractor must have a choice in who they use as an umbrella company and the agency risks breaching this regulation if they force the contractor to sign up with one specific company or sign the contractor up to the umbrella company without their knowledge or consent. Passing on personal details in this way could also raise an issue of failure to follow Data Protection legislation.
Withdrawal of an offer where a candidate refuses to use an umbrella company
It can be viewed that Regulation 5 also prohibits an employment business withdrawing an offer of an assignment because the candidate refuses to use a specific service being offered to them as this would also classify as a penalty. The Agency should always allow you to decide which company processes your salary payments.
Simply Put: If the agency revokes a job offer because you will not use an umbrella company of their choice there is an argument that they are in breach of Regulation 5 of the Employment Agencies and Employment Businesses Regulations 2003.
What can you do if your agency mandates the use of a single umbrella company or dictates the list that you MUST choose from?
- If you have an umbrella company that you would like to use for any reason you should present that umbrella to your agency.
- If they resist your choice ask for reasoned justification behind their decision.
- If their justification is based on “accreditation” feel free to question the legitimacy of the certification in question – remember you can always check on the UKAS website if you are unsure.
- If the choices available to you are being limited, see if the agency is willing to pay for the service. There is an argument that a restriction to a single option could mean the umbrella company is being treated as an extension of the agency payroll services (which the agency should have the responsibility to pay for) and not an umbrella company operating in its own right and working on behalf of the contractor (which the contractor should have the responsibility to pay for).
Know and understand your rights
As with any aspect of a contractual agreement it’s important that you know and understand your rights surrounding what businesses can and cannot dictate to you. Do your research, refer to regulations and don’t be afraid to stand your ground when you’re entitled to.
Has someone you know been forced to use a specific umbrella company? If so please contact us, we may be able to help.
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