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Reducing Legal Risks for Recruiters on Umbrella Company Contracts

Umbrella Company

We’ve recently seen activity from “ambulance chasers” looking for opportunities to bring claims for unlawful deductions on umbrella company contracts. Assuming all members of your supply chain are fully compliant, neither you nor your umbrella company partners have much to worry about, but it is worth making sure.

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It’s always been important to get the details right, but since looming IR35 reform means large numbers of contractors are moving into umbrella employment for the first time, sometimes reluctantly and often with negative preconceptions, it’s more important than ever.

Where incorrect information is given to a contractor, or the documentation is not in order, recruiters and umbrella companies are at increased risk of legal action. In this environment, it’s very important that contractors are always given sound advice and correct information, and that all the appropriate documents are in place on every contract.

Key Information Documents (KIDs)

This is a document that you must give to the contractor before they formally accept the assignment. As you might expect from the name, they provide the key information a contractor might need to make an informed decision, including the minimum rate of pay, how they will be paid, whether they will be paid through an intermediary and any deductions that will be taken.

KIDs have been a legal requirement since April 2020, but for some recruiters the new requirements have been lost under the many other pressures the industry has experienced this year. Non-compliance with the legislation leaves you very much at risk, so it’s important that every new contractor is issued with a KID. A good umbrella company will be able to help you comply with your obligations and provide you with the necessary information

Where you can demonstrate that the contractor received a KID at the right time, it will be much more difficult to argue that they were misled. The issue is also much less likely to arise if they understand their pay before they accept the assignment.

Umbrella Company Contractual Documents

The relationships between you, the contractor and the umbrella company are based on three legal documents. They support each other and if any one of them is incomplete, incorrect or missing the legal risk is vastly increased. It’s important to make sure all three are in place and correct before the contractor starts work. Our experts will be happy to help if you have questions about any of them.

Contract for services, between the umbrella company and the recruiter

This documents the relationship between the umbrella company and you as the recruitment agency, similar to the one between you and your client. It includes the umbrella’s commitment to supply outsourced contractor management services, details of billing arrangements, and restrictions and protections for both parties. Often, there will be a single contract for services covering the supply of many contractors on widely differing assignments, and the contract will be written to accommodate this.

Contract of employment, between the umbrella company and the contractor

This is the contract between the contractor and umbrella company, detailing their employment relationship. Each umbrella will have a standard contract of employment designed to cover any and all assignments the contractor might complete while employed by the umbrella. This allows for a single period of employment, which means the contractor enjoys all the rights, protections and benefits afforded to UK employees.

The assignment schedule

This document contains the specific information that cannot be included in the contract for services or the contract of employment, which generally cover more than one assignment. The assignment schedule refers to a specific assignment, contractor and client, and it details the services to be performed, the assignment rate (paid by you to the umbrella), start and end dates, notice periods, normal working hours and any other pertinent information. Where the assignment schedule refers to additional documents, for example additional terms or a Working Time Regulations opt-out, these should be included with the schedule.   

It’s very important that all three of these documents are in place, along with all appropriate signatures, and that all parties agree they are correct before the contractor starts work.

How we can help

As one of the UK’s leading compliant umbrella companies, Orange Genie are well placed to advise on any issue related to umbrella company employment. We can help you set up your KID process, and our experts will be more than happy to answer any technical questions you might have.

If we can help in any way please call our expert team on 01296 468 483 or email info@orangegenie.coim.

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