Contractors’ Questions: Is my agent’s RPO firm a legit way to get paid?

Contractor’s Question: I have been given a contract that excludes the recruitment agency from liability to pay  me. Instead I will be paid by ‘RPO X’, a large company that provides HR/payment services for end-clients. But RPO X is not party to the  contract. Therefore my understanding is that no one is contractually liable to pay me My agent says this is normal, and claims that lots of other contractors have accepted the process and have had no problems receiving timely payments by RPO X.

Moreover, I don't think the agency will change the contract to accept liability for payment, nor that I would be able to get any contractual arrangement with RPO X. Should I reject the contract in the light of this payment arrangement being alien to me and a bit concerning? Positively if I do accept but then subsequently wish to move on, the termination notice is only one week.

Expert’s Answer: Without seeing the full details and wording of the contracts, it is difficult to answer specifically on this issue. But the arrangements you describe are becoming more commonplace and, when proposed by a large organisation (in your case a Recruitment Process Outsourcing group), are likely to be structured correctly throughout the chain.

Rather than increased risks, these types of arrangements have actually been designed to reduce risks to the contractors and help get contractors paid faster.

Some contractors are understandably curious about how recruitment companies fund their businesses if they operate such a payment model, or use an RPO. In the vast majority of cases, the recruiter will use invoice discounting or factoring services to fund their cash flow requirements as they need to regularly pay money out. For example to their contractors, before they have been paid by their clients.

Traditionally, lenders were happy with these arrangements, possibly because they did not fully understand the relationships along the supply chain.

But in late 2009, a series of events occurred that woke lenders up to the risks. They suddenly realised that they were, in fact, funding the same piece of work numerous times - even up to three or four times depending on the exact structure. They would fund the recruitment process outsourcing company’s invoice, RPO X in your case; they would then fund the agency invoice and, in some cases, could even be funding a further recruitment agency or umbrella invoice.

As soon as the lenders realised this duplicity of funding they, understandably, took steps to stop it. One of the outcomes affecting funding was the arrangements that are now being offered by many of the large RPO companies. These arrangements are designed to help their recruitment partners deal with such funding issues.

In your case, it may be that the agency receives their margin from the RPO, and then the RPO pays the contractors. This simple amendment allows the funding chain to continue to work and, in theory, helps to reduce risks.

But as you correctly identify, the agency will not be able to amend these arrangements as they are agreed in advance and would usually include the end-client accepting the structure.

That said, I would suggest that the payment proposal you have received seems to be in order, and that there does not appear to be anything in the circumstances you describe that you should be overly concerned about.

The expert was Crawford Temple, managing director of Professional Passport, a compliance and risk management group specialising in contracting.

Tuesday 28th June 2011