The Watertight Umbrella

Compliance is a hot topic at the moment, as HMRC is once again brandishing the threat of debt transfer for recruiters unwise enough to engage with offshore intermediaries. But what exactly does compliance mean? I’ll warn you now – this won’t be the most interesting article you’ve ever read but it will tell you what recruiters need to add to their due diligence checks to ensure ‘compliance’ according to the HMRC definition. Adherence to legislation is one thing – IR35, MSC legislation, AWR legislation, EC Working Time Directives – the requirements for compliance for all of these is pretty straightforward.

What’s not so straightforward is what HMRC expect from a ‘compliant’ umbrella company; their guidance is just that, it is not rooted in legislation. Umbrella companies are employers who work with contractors via an over-arching contract of employment and they have all the statutory obligations of any other employer. This means that they are obliged to pay maternity pay, paternity pay, adoption pay and sick pay and all these payments must come from the umbrella company’s bottom line. It is not acceptable for an umbrella company to make deductions from the contractors’ salaries and then pay the money back to them at a later date under the heading of a ‘statutory payment’.

Umbrella companies are also responsible for holiday pay; some are still making these payments as part of the contractors’ regular salaries, a process referred to as ‘rolling up’ holiday pay; this was outlawed in the EC Working Time Directives.

Click here to read the original article as published in Global Recruiter, in October 2013.