AWR due diligence is more than merely speaking to umbrella companies

A little more than a month old, the Agency Workers Regulations are bringing into the spotlight the need for contractors, agencies and clients to work closely together to ensure employment legislation compliance, writes Jane Stevens, head of contract IT recruitment at Jenrick. Often within this mix, sits umbrella companies and the need for contractors to choose the right one.

For the purpose of this opinion piece, the contractor referred to has decided that working through an umbrella company, as opposed to running their own limited company, is preferred. Perhaps setting up and running an incorporated business is seen as too much hassle, or the contractor is new to the freelance market and wants a ‘safety net’ to give temporary working a try.

As in many marketplaces, with umbrella companies you will find the good, the bad and the ugly. The challenge for the contractor is to establish the bonafide players; those who are able to run their contracts as compliantly as possible and therefore minimise the risk to the contractor.

Before AWR arrived, on October 1st 2011, clients were less likely to be aware of how each contractor ran their own operation. Post-AWR, however, clients need to know how the contractor is operating in order to make sure they and/or the agency supplying the contractor on-site are operating AWR compliantly.

Where a recruiter is involved, the agent should not force the contractor to run through one particular umbrella company. This can be viewed as coercion. That said, remember that agencies are more than just mindful of the AWR because they are required to run compliance checks on all the umbrella companies their contracts currently sit beneath.

To date, a ‘bullet-proof’AWR model does not exist (- we must wait for the Tribunals to have that say), yet there are models which are as ‘AWR-risk-averse’ as possible.

So in a post-AWR world, how might a contractor navigate their way through the potential minefield of getting to the right umbrella company, when there are so many in the marketplace to choose from? Well, a good agency should now be in a position to advise which umbrella companies they have compliance checked and who they are prepared to work with.

Agents should note, not least because contractors might ask them, that this selection should not cite only a single umbrella company but should instead consist of several umbrella companies, all offering AWR-risk-averse models. If the agency is not able to produce this information - or where the contractor wishes to make their own checks, it is essential to make a full 360-degree study of whichever umbrella company the contractor wishes to use. Speaking directly to the company is not enough.

Moreover, where an agent cannot produce such compliance data, I recommend contractors drill down with the agent as to why. Among your own due diligence checks as a contractor, consider an online search on the company’ s name and details. Who are the directors, for example, and how have they operated in the past? How long has the company been operating? Sensible discussions with other contractors, in person or on forums, can sometimes aid the contractor in building on such a profile, and help weed out the disreputable operators. Doubters of these due diligence steps need only talk to the too many umbrella contractors over the years who have heard from administrators that money owed to them for their services is impossible to recover.


Friday 18th Nov 2011
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