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Why Umbrella Company Employees Can’t “Cut Out the Middle Man”

Umbrella Company

In recent months, many UK businesses have found themselves under pressure and are looking for ways to reduce costs. This has led to questions about the contractor supply chain, and whether contractors and clients can “cut out” recruiters from the equation. If you’re an umbrella company employee, it isn’t always clear where you stand. Can you end your relationship with the agency and put your umbrella in touch with your client? Can you leave the umbrella and work directly for the client? As you might expect, it’s usually not that simple.  

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How the supply chain works for umbrella company employees

The contractor supply chain exists because various parties are outsourcing important tasks to specialist experts. The client engages a specialist recruiter to source and supply contractors with the skills they need, and the recruiter outsources employment to an umbrella company, who specialise in employing contractors.

 

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Some clients may suggest that they now engage directly with the umbrella company, cutting the agency out of the equation, or engage the worker directly, cutting out agency and umbrella. This would obviously damage the relationship the client has with the recruiter, which could cause them problems in the future, but given enough financial pressure it’s easy to see why the idea might appeal.

Why your umbrella company may not be able to engage directly with the end client

In many cases, the umbrella company will value their relationship with the agency and will refuse for this reason. Even where this is not the case, most agencies routinely take steps to ensure their business is protected in this scenario.

It’s common practice for the contract between your umbrella company and the agency to include a restriction clause to stop you working directly for the client for a set period. The umbrella could be subject to financial penalties if this clause is broken.

Why you may not be able to engage directly with the end client

Since the restriction clause may exist in the umbrella’s contract with the agency, you might hope to get around it by cutting out the umbrella as well and working directly for the client. However, your contract of employment with the umbrella company will make you responsible for their contractual obligations.

If a restriction clause exists and you break it, the umbrella will usually pass any resulting charges on to you. Before you consider any offer from the client, it’s important to find out exactly where you stand, and make sure all parties are happy to accept the new arrangement.

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Why this situation exists

It’s important to recognise that a commercial supply chain has no room in it for anyone who doesn’t add value or provide a useful service. The client chose to engage a contractor, and to outsource recruitment to a specialist expert, and there are real advantages behind that decision. It’s difficult to argue with the agency’s choice to protect their business by preventing their clients cutting them out of the chain.

If you have questions or if we can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com.

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