Key Information Documents – what contractors need to know

As the 2020/21 tax year approaches, a number of changes are being introduced by the government to help ensure there is more transparency between those seeking work and employment businesses or agencies.

One of these reforms includes the introduction of Key Information Documents (KID) for agency workers, which will contain vital information regarding pay, deductions and benefits. The introduction of KID is designed to help agency workers make more informed decisions before taking on an assignment and to ensure they have a better understanding of things such as how their pay will be affected by any fees and deductions.

Here, Joanne Harris, Technical Commercial Manager at Parasol Group explains how this innovation will affect contractors.

Key Information Documents – The Basics

From April 2020, employment businesses will be required by law to present a KID so that agency workers can understand more about the assignment on offer. A key feature of the legislation is that these documents should be provided to ‘work-seekers’ and must be received before entering into a contract with the employment business.

Under the new legislation, Key Information Documents will state:

  • The employer name and who is paying the worker
  • Information which relates to the relationship between the “employment business” and the “work-seeker” or umbrella company is there is an umbrella company in the supply chain.
  • The details of any deductions (statutory or otherwise) that will affect worker’s pay
  • Employee benefits (e.g. holidays etc.)
  • Estimated net payment, which will be issued to the worker after all deductions have been taken into account

The purpose of Key Information Documents

The purpose of the new documentation is to improve relations and transparency for agency workers. The legislation ensures all work-seekers are provided with access to key information before agreeing to terms of employment with their new employer. The government hopes that providing a KID will improve transparency for work seekers dealing with third parties so they are treated fairly.

What details should a KID include?

Guidance released by the government has outlined what must be included in the documents to ensure they comply with the standards set. They must include:

  • Name
  • Contract type
  • Name of employer
  • Rate of pay
  • Payment dates and interval
  • Any statutory deductions (e.g. tax, national insurance)
  • Any non-statutory deductions (e.g. private health care)
  • Fees for good and services
  • Any additional benefits
  • Holiday entitlement
  • Representative example statement

What is a representative example statement?

A representative example statement must be included on all Key Information Documents and should take the form of a table, highlighting a worker’s pay and how deductions will be applied. The representative example statement should first state the gross pay and then list all deductions, fees, charges and benefits that will impact the take-home pay amount. Where the worker is engaged via an umbrella company, the pay illustration will include all deductions made from the agreed ‘umbrella rate’.

Will existing employees be required to receive a Key Information Document?

Current workers, who are already working for an employment business on 6th April 2020, will not need to receive a Key Information Document, as the legislation will only apply to workers who start an assignment after this date.

If there is a change after this date which impacts upon the information included in the KID, for example, a new umbrella company provider, a new KID must be issued within 5 working days of the change.

Are employment businesses or umbrella companies responsible for Key Information Documents?

The employment business (recruitment agency) is responsible for providing the KID and issuing a new KID if the information contained within it changes.

Employment businesses can rely on any information presented to them by umbrella companies, as they may not directly have any data on the contractors they employ. Therefore, they will not be held accountable for any mistakes in documentation if it relates to the intermediary or umbrella companies directly.

What will this mean for contractors working through umbrella companies?

Much like other agency workers, the legislation should guarantee greater transparency so that all deductions made from employers can be understood before accepting a new role. Workers will be able to see all of the deductions made from their pay on the documents, which will show the journey of their income from the employment business, through the umbrella company before then presented with their final net amount.

The government is hopeful this approach will stop any confusion regarding what deductions have been made and why. If you have any further questions, visit Parasol, which is one of the UK’s largest and leading employment service providers.

Partner Contractor Accountants

Last updated: 21st February 2021