From April 2020, all recruitment agencies must furnish applicants with a ‘Key Information Document’ (KID) prior to signing up. Here we look at what this new requirement involves, and what contractors should look out for.
The requirement to provide a KID to agency workers is covered by regulation 13A of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the ‘Conduct Regulations’).
From 6th April 2020, all agency workers must be provided with a KID before agreeing terms with a new employment business.
The aim of this new document is to provide transparency on how agency workers are paid, and what gets deducted from their contract earnings.
You can access the official guidance here, including example KID tempates for PAYE, umbrella and limited company contractors / workers.
We asked leading umbrella expert, Lucy Smith from Clarity Umbrella how this new agency requirement will affect contractors.
What do contractors have to do?
The KID has to be provided by the agency, so it is their responsibility to provide this to the contractor before they sign any contracts. The document must illustrate which options are on offer to the contractor from the following; PAYE, Umbrella PAYE, Inside IR35 to PSC, or outside IR35 to PSC.
How will this protect umbrella contractors from unscrupulous operators?
A full breakdown of deductions is required, so if there are any monies not being accounted for or shown as loans or something dodgy then a contractor should be able to spot this a mile off. It also means that any agencies will be able to see how the umbrella company suggests they will operate (obviously there could be a difference in what they say and what they do, but lets hope not!)
What about limited company contractors, will they get a KID too?
Yes any contractors who use an agency will need to be provided with a document showing their pay details. This could mean gross figures / net figures, or both, dependent on which route they go down.
- Agency to umbrella to contractor = gross contract rate (employment costs met by contract rate before taxable salary is arrived at).
- Agency to PSC (outside IR35) – gross contract rate (PSC to ensure deduction of employment costs from contract rate).
- Agency to PSC (inside IR35) – net salary figure (as agency is deemed to cover employment costs).
There are lots of possible pathways, but these examples should give you a good idea.
What if I’m already working for an agency, will they automatically issue me with a KID on April 6th 2020?
No. If they are engaged with the agency pre-April 2020, then no document is required. However, if they change assignment with the same agency, then a KID would need to be signed before commencing on the new assignment through them. The regulation only applies to agency workers signing after that date.
Tax-efficient life insurance via your limited company
Save up to 50% if your limited company pays the premiums. Find out more.