If you find a contract through a recruitment agency and want to use an umbrella company, can the agent insist you use a provider on their preferred supplier list (PSL)? What if I want to use a different umbrella?
Here we look at this well-known issue, with some useful advice from two umbrella industry experts.
What is the problem?
You successfully apply for a contract role via a recruitment agency and want to trade via an umbrella company.
Alternatively, you find a role, but the client has a limited company contractor freeze due to the off payroll rules, so you’re compelled to use an umbrella.
Can you use any umbrella company of your choice? Not necessarily…
Most agencies have ‘recommended’ umbrella companies on their preferred supplier lists (PSLs).
There are several reasons why this is the case, including:
- The agent has vetted its PSL umbrella companies and doesn’t want to be associated with unscrupulous providers.
- The agency only wants to use a select list of umbrella providers to minimise their admin workload.
- The agency receives a financial incentive for recommending contractors.
Andrew Trodden from Umbrella Company UK told us:
Responsible recruitment agencies will have an up-to-date Preferred Supplier List (PSL) in place, consisting of umbrella companies they are certain to operate compliantly and in the best interests of their candidates.
While PSLs, in principle, are great, they can result in agencies blocking contractors from using an umbrella of their choice.
Lucy Smith from Clarity Umbrella told us:
If an agency says they won’t allow you to choose there are a few reasons, but primarily they need to ensure their due diligence has been done on each company they engage with.
This means that both the agent and their end client do not have the risk of debt transfer liability.
If the agent doesn’t do checks and ends up working with an avoidance scheme then it can fall back on them quite heavily. Therefore, a lot of agencies will also look for accreditation to give them peace of mind.
It may also be a business decision that from an administrative perspective, the agent does not want to have to process payments to a large number of different umbrellas.
What happens if my agent won’t let me use a non-PSL umbrella?
This is a commonplace scenario. Your agent won’t let you use a different umbrella provider.
Given the imbalance of power in the relationship – especially with contract work hard to secure – what can contractors do about it?
Lucy Smith continues:
We have some very loyal contractors that will push back on it, and on occasions this works, but the contractor has to be happy with the idea of walking away from the assignment if they cannot choose their own brolly, which some of ours will do.
Past that point, if they are adamant that they will not allow you to choose, then there is little you can do, unfortunately.
Andrew Trodden concurs:
If you’re working through an agency on a temporary assignment and there is a specific umbrella company you would like to use that doesn’t feature on the agency’s PSL, it cannot harm to ask your agency contact to review them and allow special dispensation.
However, through experience, you will probably be required to use an umbrella on the PSL. And if you don’t – you may not be allowed to continue with the role.
General advice for contractors
As you can see, the scope to push back against an agent’s PSL is limited.
It is always worth trying, especially if you have had a good experience with a particular umbrella in the past.
However, market forces ultimately ensure that if you reject a contract, someone else will happily take the role.
Trodden continues:
…at the end of the day, using an umbrella is entirely your choice. If you don’t feel comfortable using one – don’t register with one. You may not be able to work on the assignment you had lined up, but it’s entirely your choice.
Don’t agents get kickbacks for recommending umbrellas?
It is well-known that many recruiters get financial bonuses from some – mainly large – umbrella companies, and money is a big incentive for salespeople.
Some receive a one-off signup fee, others get paid a fixed fee per timesheet submitted.
However annoying this might be, it is a commonplace practice across a wide range of industries, and there’s nothing contractors can do about it.
Never use a dodgy umbrella provider
Importantly, whichever umbrella you end up using – one of your own choice, or one on your agent’s PSL, you must ensure that it is a UK-based PAYE provider.
Although not foolproof, it should have an industry accreditation (FCSA or Professional Passport) as a minimum.
More and more providers now use payroll auditing software such as SafeRec to demonstrate that all deductions are legitimate.
Above all, don’t be tempted by an offshore or non-PAYE scheme – doing so could cause serious problems in the future.
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