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Recruitment agencies and umbrella company kickbacks

Most contractors will be aware of the ‘preferred supplier’ arrangements which exist between many recruitment agencies, and various service providers (particularly umbrella companies and accountants.)

In some cases, agencies are simply keen to recommend good service providers who they can work with. In many other cases, a commercial agreement will exist whereby the umbrella company provides a kickback to the agency (or recruitment consultant) for each new client sign-up. This may be a fixed fee or a commission on each timesheet submitted by a contractor.

Commissions reaching unsustainable levels

The latest edition of the Professional Passport newsletter (which is well worth signing up to), suggests that although commercial relationships are inevitable within the industry, commission payments in some cases may be reaching unsustainable amounts.

According to the newsletter, some recruitment companies are receiving £15 per timesheet submitted – which would amount to £60 per month is a contractor is on a weekly billing cycle. Clearly, the contractor will bear the cost in the end. Several agencies also allow their consultants to receive commissions of over £100 per new contractor signup.

Non-compliant umbrella companies may benefit

Professional Passport also suggests that such arrangements may benefit non-compliant umbrella companies:

“We have also seen evidence that these types of commission deals provide commercial advantages to non-compliant providers, as they tend to have lower operating costs and therefore can often outbid a compliant company. Furthermore, we believe that these levels will ultimately result in the collapse of some providers, leaving contractors further out of pocket”.

The dilemna for umbrella companies and contractors

For service providers, such arrangements will often result in a dilemna – do you enter into a commercial relationship with an agency to build your client base, or do you refuse to provide commission payments and risk being shut out by agencies?

Similarly, contractors have every right to know if a commercial relationship exists between their agency and a recommended service provider. However, many contractors may be keen not to upset their agencies, especially given the competition for roles in a depressed market, and may prefer just to go with recommended umbrella providers than researching the market for alternatives.

Last updated: 16th June 2019