IT contractor launches petition against Preferred Supplier Lists

An IT contractor has launched a formal petition against Preferred Supplier Lists (PSLs).

Paul Sheraton, an IT support contractor, says workers like him ought to be allowed the right to choose the umbrella company that they want.

PSLs were introduced more than 20 years ago, but a number of legislative risks for recruitment agencies since have made their usage more entrenched.

The lists, which effectively contain the only umbrella companies which an agency permits contractors using its services to use, have also become more common and less flexible.

'Free choice'

But Sheraton says limiting the selection of umbrellas which contractors can operate via is not just an impediment to “free choice,” it is also a potential breach of the Conduct Regulations.

“Agencies are in breech [sic] of The Conduct of Employment Agencies and Employment Businesses Regulations 2003, as they refuse someone from choosing their own umbrella”.

Posted last week, the IT contractor’s petition continues: “The law needs to change around this to allow contractors the choose [sic] over which umbrella company they [utilise].”

'No Conduct Regulation restricts PSL usage'

Last night, agreement that the law must change to prohibit being employed by an employer not entirely of a worker’s choice -- as Sheraton wants, was widespread.

But backing for the contractor’s claim that agencies are flouting the 2003 regulations by operating PSLs is not.

Adrian Marlowe, managing director at Lawspeed told ContractorUK: “There is no regulation in the 2003 regulations that restricts the use of a PSL.

“[And there is no regulation in the 2003 regulations that restricts the] referral of a worker to a business on a PSL.”

'Connected service'

The recruitment lawyer cautioned against misinterpreting regulation 5 – which prohibits an employment business from requiring the worker to use a “connected service.”

But ‘connected’ here means a service provided by a business that relates to the employment businesses, such as where that service has the same directors as the employment business.

Crawford Temple, chief executive of compliance group Professional Passport is sympathetic to Sheraton’s concerns.

Indeed, Mr Temple complained to MPs a year ago that “ultimately,” it is the contractor who ends up paying in the form of higher umbrella fees, where an umbrella is forced to pay an agency to be on their PSL.

'Reasonable to operate preferred supplier lists'

“However agencies hold a lot of liabilities,” the compliance boss acknowledged yesterday to ContractorUK.

“So it is reasonable for them to operate with a select panel of umbrella firms that pass their rigorous and robust compliance tests. [And] I don’t believe that breaches any regulations.”

Lucy Smith, managing director of Clarity Umbrella sounds like she wishes it did constitute a regulatory breach.

'Removing continuity of employment'

Pointing the finger at an agency on LinkedIn by linking to their profile, Ms Smith has posted: “After [your] takeover of another business with whom we have worked with [extensively], our contractor is now being forced to leave our employment to work via [another umbrella] on your preferred supplier list.”

She asked the agency: “Do you realise that by doing this you are removing the continuity of employment for the individual?

“And your agency is more than likely also pushing them into another umbrella pension scheme that may differ from the one they are already contributing to as well?”

'Bad enough pill to swallow'

Smith added that as if IR35 wasn’t a “bad enough pill” to swallow, “to then force a move on the individuals” due to the agency swallowing the prior agency was “simply just wrong.”

According to WTT Consulting, a “good” agency should be willing to accept umbrella companies onto an Approved Supplier List (ASL).

“[Acceptance onto the ASL would mean] the agency has subjected the [contractor’s] proposed umbrella to their usual ‘due diligence’ checks and are happy to enter into a contract.

“Unfortunately,” added WTT, “this practice isn’t the norm, leaving contractors disadvantaged. Until umbrellas are required to be regulated, we are unlikely to see any change”.

'Clear and strong guidance'

Sounding aware of the legal position subsequent to posting his petition, Sheraton says he is now writing to his local MP about his agency PSL concerns.

And there is a good chance that his MP might be aware of the issue already.

In April 2021, the Loan Charge All Party Parliamentary Group recommended two distinct actions on PSLs to the UK’s recruitment watchdog.

First, that ‘clear and strong guidance’ is published about what is ethical and acceptable when it comes to the charging of fees for being on a PSL.

And second, the Recruitment & Employment Confederation was also told by the LC APPG, that the REC states that no recruiter, whether a confederation member or not, “should ever insist on undisclosed kickbacks.”

'Should be mandatory'

At the time of their two recommendations, the MPs explained: “It should be mandatory for a recruiter to make explicitly clear, including in writing, if they are recommending any umbrella company or payment intermediary from whom they have received payments, for listing as a preferred supplier or for recommending to workers.”

If Sheraton has no luck with his own MP, Professional Passport recommends his next letter ought to be to the EASI.

“We are unaware of any enforcement activity by the Employment Agency Standards Inspectorate on any recruitment company operating under these arrangements.

“EASI enforces the regulations on agencies, so perhaps the contractor who has raised the petition might consider contacting EASI as a first port of call to discuss his concerns directly,” said Mr Temple.

'Blood of an alpaca slain under a full moon'

But a recruiter’s online post implies agencies themselves could be among those who ask EASI to intervene, even if their directors would then be foregoing future fitted kitchens.

“Great news, you get a place on our PSL,” the post begins, sarcastically, and beginning to impersonate a rival, PSL-operating agent.

“You just need to agree a few quick things first: 10% fee; 90-day payment terms; 12-month rebate. Oh, and the blood of an alpaca that was slain under a full moon.

“Yes there are reasons, and no, we won’t discuss them. I trust that all works for you. So we’ll send over a 325-page document containing our terms, which you’ll return to us by tomorrow morning.”

'Faustian deals'

Reflecting on his tongue-in-cheek characterisation, the recruiter, Daryl Hughes, told his fellow agents: “Look, if your client-wins sound like weird Faustian deals, they’re not wins.”

To one contractor who has signed Sheraton’s petition, the prospect of devilish consequences because of PSLs should not be underestimated.

She wrote: “I’m signing because I was forced to use an umbrella company once, and then got caught out [by HMRC] -- as the umbrella was dodgy.”

'Corry selected which contractors were appropriate'

On Friday, the Crown Prosecution Service said a businessman who pocketed more than £1.5million in bribes to help contracting companies win lucrative contracts had been charged and convicted, in a historical first.

Noel Corry, senior manager of Coca-Cola Enterprises, who headed up subcontracting site service work at CCE and influenced the selection process including personally leading the identification of the "appropriate" contractors, was handed down a 20-month suspended sentence.

By three companies that wanted to be selected, Mr Corry accepted cash bribes, free tickets to sports and entertainment events, and even sponsorship of his local football team.

'Failure to prevent bribery charge'

“[This list] will sound familiar to anyone involved with umbrella PSLs,” says Julia Kermode, chief executive of IWORK.

“This is the first time that the Met Police has charged and convicted [the three companies but not CCE which was unknowing of Cory’s actions] for failing to prevent bribery. Inevitably more cases will surely follow.”

Ms Kermode added: “If you’re [in the contractor sector and] worried about this -- maybe you should be.”

'Unconscionable sum to join PSL'

Reflecting on the CPS saying the sentence should send a “strong message to individuals out there who seek to create an advantage for their business,” Kevin Austin, managing director of Access Financial reflected:

“This [case does] remind me of when we were asked for some unconscionable sum to join the PSL of a major recruitment business. I told them what they could do with it. I got cancelled. It’s the price you pay.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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