IT Contractor Service Provider News

A recruitment law specialist has said that recruitment agencies should ensure they have adequate protection against the possible failure of umbrella companies they use.

This article has also resulted in some strong responses from other organisations (see footer).

Lawspeed have spoken out following news that JSA Services Limited, part of the JSA Group, owes £10.6 million to HMRC and has entered into a voluntary arrangement and that two other umbrella service providers, Sunday Solutions and Albany have left contractors unpaid.

Umbrella company 'compliance' claims cannot always be relied on

Adrian Marlowe, MD of the law specialists said "whilst agencies have quite rightly been focused on making sure they are not exposed to debt transfer arising under the Managed Services Legislation, it is just as, if not more, important for agencies to make sure that have a fall back position if the umbrella they are dealing with fails to pay the worker. Claims of compliance by an umbrella should not lull the agency into a sense of security - as recent events have shown that sense can be false."

"The umbrella industry is not regulated and there are few checks and balances in place. All umbrellas claim to comply yet the issue of incorrect payment of expenses in particular is a current focus of concern for HMRC. Where an HMRC investigation establishes that rules have been incorrectly applied by umbrellas, a demand for payment of correct levels of tax usually quickly follows. That can lead to an insolvency situation and the potential for the umbrella to simply fold. In those circumstances it is entirely possible that monies received in from agencies can be used to pay off secured creditors and HMRC before the worker gets a dime - leaving the agency to face the brunt of the worker's complaints, and everyone in the chain unhappy."

Reputation of umbrella industry damaged

Adrian went on to say "...given HMRC's current policy of investigation it is crucial that agencies ensure they have correct procedures and contracts in place. Agencies should never rely on 3rd party accreditation or the size of an organisation. Regrettably these recent events have served as a siren warning for all, and without doubt have again damaged the reputation of the umbrella industry."

Reaction to Lawspeed article

Responding to Lawspeed's comments earlier this week, JSA provided a response on the Recruiter website.

Professional Passport have also offered some clarity and guidance on the subject here (PDF).

You can read the Service Providers' Association (SPA) response here.