End hirer essential checklist for a compliant supply chain

The roll-out of the Off-Payroll legislation into the private sector in April 2021 now means that the responsibility for assessing the IR35 status of a contractors moves from the contractor to the end hirer.  It is therefore critical to make an accurate assessment as part of the compliance process from the outset as any errors will likely lead to liabilities.  Knowing who you are working with and knowing that your supply chain is operating compliantly is not to be ignored.

The rise of unscrupulous umbrella companies

The new legislation has meant that an increasing number of contractors are now working through umbrella companies.  The new legislation has also given rise to a proliferation of new providers posing as umbrella firms when the reality is they are tax avoidance schemes duping innocent contractors into signing up for them, often with the promise of more take-home pay.

For hiring firms, it now means that it has never been more important to get to know their partners throughout the supply chain and take steps to know that their recruitment partners and the umbrella firms that they work with are operating to the most robust compliant standards that will stand up to rigorous interrogation and investigation.

Understanding the difference between a non-compliant and compliant supply chain is key

Knowing your recruiters are working with approved partners in the supply chain who have been compliance accredited is imperative and with many contractors deemed ‘inside IR35’ opting to work through umbrella companies it is vital that clients understand how a compliant supply chain operates and what to look for in a non-compliant one.

There are a number of steps to take to check the credibility and compliance of other parties in the supply chain and you can add specific requirements to your contracts with your recruiters so that you secure assurances and reassurances.  You can start by checking out your recruiters.

• Are they in a good financial position?  At the very least you should be running a credit check, and you should also investigate their accounts – if independently audited then you can feel reassured that the figures given are true.
• You should also check for issues such as conflicting business interests, previously failed businesses, financial difficulties and offshore connections.
• You will also want to check their contracts of employment (umbrella), insurances and levels of cover.  You are well within your rights to request to see a copy of their insurance certificates, VAT certificate and certificate of incorporation. 
• Don’t forget you are trusting your partners with large sums of money, so you will need to be assured that they are genuine and have appropriate cover in place.  And ask your recruiters to confirm the names of the intermediaries they work with and run similar checks on those.

Such an audit would identify:

A high-risk provider, one more likely to be a disguised remuneration scheme where malpractice and unethical behaviour is occurring.

A medium risk provider, which is one where there is no evidence of non-compliance but no evidence that their services have been verified for compliance either

A low-risk umbrella provider, one which holds a recognised compliance accreditation certificate and is unlikely to pose any sort of threat to the supply chain. 

An increasing number of recruiters work only with approved providers, but it is important that end clients do their own checks and put processes in place to ascertain compliance.

What does a compliant umbrella firm look like?

Compliant umbrella firms offer a legitimate contractor management solution that gives individuals all the benefits of employment whilst working on a variety of assignments and good umbrella firms are open and transparent in their dealings with workers and provide a clear contract of employment that explains how they will be paid, what deductions there will be and for what, how their expenses are paid and how their holiday pay is worked out.  Open transparent communication is key throughout the supply chain and end clients must educate themselves about how umbrellas work so that they can feel assured that they are part of a compliant chain.

Hirers must have honest conversations with their recruiters and ask key questions and understand the warning signs and what to avoid when looking at the providers in the market. 

The importance of implementing effective compliance processes cannot be overstated.  Non-compliance does not pay and could be costly in the long run.

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Crawford Temple is CEO and founder of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance. You can find many useful articles and videos on the Professional Passport website in the Hot Topics section.