Albany is an alert to contractors, agents

For IT contractors with an assignment, there is nothing worse than NOT getting paid for work they have done, writes Adrian Marlowe, chairman of the Association of Recruitment Consultancies , and managing director of Lawspeed, a recruitment law specialist.



This is a plight that some contractors now find themselves in as a result of the financial difficulties facing their umbrella company. Understanding the causes of these financial difficulties is one thing, but getting the money for workers who used it is another. However both aspects need consideration.



Recruitment agencies assume that the umbrella company will always pass on payment for the work done, because umbrella operations are essentially an accounting exercise which should not give rise to cash-flow problems. Many umbrellas operate on a pay when paid basis, so there is little room for money to go missing unless the model is incorrectly formulated in some way, or there are operations failures. Factoring should only apply when the umbrella is paying out in advance of receipt from the agency.



It is not clear how one umbrella company, Albany, has got itself into financial difficulties, but it is likely that the withdrawal of funding (if this is in fact the cause) was as a result of operational matters over a period of time. This is important. A well formulated agency-to-umbrella contract should leave the agency in a position where its obligation to pay the umbrella reflects the requirement for the umbrella to pay the contractor. If that has been done, then there is scope for the agency to retain funds that otherwise may be due to the umbrella.



Provided that the agency is in a position to retain funds for work done before the contract was terminated, the funds can then be applied to the contractor directly, subject to PAYE and NI deductions. Agencies should seek professional advice before taking this step to ensure that their contractual position is secure to enable them to do this without further claim from the umbrella company, its administrators or assignees.



To avoid difficulties with HM Revenue & Customs, it is crucial that the Albany contractor should not try to divert funds for pre-termination work through another umbrella or service company provider in order to continue achieving some kind of tax benefit. Diverting in that way could leave both the agency and the new umbrella open to investigation and penalties.



It should also be emphasised that a contractor, who is regrettably owed money, was the sole party who chose to operate through Albany, and the party that is responsible for paying that contractor is Albany, not the recruitment agency.



In other words, affected contractors should remember that their contract is with the umbrella company and not with the agency. In past situations of umbrella companies experiencing financial problems, some contractors have even complained to the Department for Business, Innovation & Skills about their agency. This action does not help the contractor in their goal of recouping their owed monies.



What could potentially get the contractor their money from an umbrella company in administration is:



-to ensure that the agency is aware of the fact they haven't been paid by the contractor telling the agency straight away



-for the agency to consider whether it is under an obligation to pay the umbrella company, and that will very much depend on the contract they have with the umbrella



Ultimately, however, it is now most important to safeguard against the recent uncertainty for umbrella company contractors from happening again. It is crucial therefore that agencies not only have the right contracts and do not just sign up to the umbrellas own terms, but also that they understand how their umbrella is working so they can assess the risk of non-payment in the future.