What is a Preferred Supplier List?

When working through a recruitment agency, your agency may be required to treat you as an employee in terms of, amongst other things, deductions to be made from assignment income and payments to be made to HMRC. Often, agencies do not wish to have this responsibility and so may require you to sign up with an umbrella company instead. This transfers some of that responsibility from the agency to the umbrella employer.  

When you sign up to a compliant umbrella you should become their employee, with access to all statutory rights and benefits of employment.  These include maternity pay, paid holiday, sick pay and much more besides.

The costs of employment are included in the assignment income that the umbrella receives from the agency.  Under the Criminal Finances Act 2017, the agency has a duty to ensure it does not fail to prevent tax evasion by anyone associated with it.  This duty extends to businesses that they work with, and given that umbrellas are responsible for paying agency workers their remuneration many agencies want to ensure that their chosen umbrellas are not facilitating tax evasion.  

Agencies can mitigate their risk by undertaking due diligence on the umbrellas that they work with and by having a Preferred Supplier List, or PSL.  

But what is a PSL, and why should agencies have one?

In short, a preferred supplier list (“PSL”) is a directory of suppliers that  an agency uses and that the agency has confidence in as being reliable and meeting the standards requirements set by the agency. Many agencies have one.  

By creating a PSL, agencies can effectively build up a list of favoured companies to work with,  weeding out any suppliers that do not meet its standards or who it believes may cause them any issues.

The benefits of having a Preferred Supplier List

Most businesses recognise the value of streamlining processes to achieve greater efficiencies. Having a PSL is a step towards that. It enables a business to set standards and criteria that align with its values and business practices to measure suppliers against. 

The business can then determine which suppliers meet its requirements and can be admitted to its PSL. For example, an agency can establish where the supplier is based and whether it is offshore or onshore for the purposes of the Off-shore Intermediary Legislation and the On-shore Intermediary Legislation.  The agency may choose not to work with intermediaries based offshore for monitoring reasons.

Having a PSL, means that a business does not need to research new suppliers each time it needs services to be provided. It simply uses one from its PSL, saving time and work. 

Agencies with PSLs are able to build relationships with the suppliers on their list, build confidence in the supplier by measuring performance and ensure that the conduct of the supplier is aligned to the needs and standards of the agency. This in turn builds confidence from workers using the business.

At the extreme end of the scale, for instance, if an agency hasn’t taken the time to build a thorough PSL, and chooses to partner with an umbrella company operating an illegal scheme, the agency could find themselves in breach of the Criminal Finances Act 2017 .

How? An umbrella agency may be involved in tax evasion (which is illegal) without the agency’s knowledge. The legislation states that ignorance is no excuse and the agency could still be found to be complicit under the Criminal Finances Act 2017. 

Find out more about the Criminal Finances Act here.

What does this mean for agency workers?

An agency might therefore have a trusted preferred supplier list of umbrella companies for a worker to choose from should the worker wish to work with that agency and its clients. In building up this list, the agency should audit potential partners and undertake due diligence to mitigate any risks, and identify the best companies to work with.

How an agency might assess umbrellas for their PSL

Creating a PSL is project to help safeguard the business. There is no set template for a PSL, and it can be as long and as detailed as the agency wishes.

The more time put toward creating a PSL, though, and the more thorough the investigation  into a potential supplier when assessing them as a partner, the less chance there will be of the agency being hit by any nasty surprises when dealing with  a preferred supplier.

Nowhere is that more true than when assessing an umbrella company. How an umbrella performs and acts towards workers, referred to it by the agency, could reflect on the agency.

The agency needs to undertake some research into the umbrella companies that it is considering for inclusion on its PSL. For example, it should check the umbrella company’s operation, how it pays workers, the legal status of the umbrella company, it’s registration status and its documentation provided to employees. The agency may also consider any accreditations that the umbrella might have.  

It is worth looking at the human element, too and how the umbrella company treats temporary agency workers, freelancers and contractors.

Reviewing websites and social media can give a great idea of how effective an umbrella company is and how helpful they truly are. It’s also worth gauging who the umbrella company works with as part of its supply chain, too. We are judged by the company we keep, after all.

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