The REC has advocated for umbrella companies to be regulated for many years. In the absence of that regulation, the recruitment body is announcing a set of measures aimed at protecting workers and ensuring compliance among recruitment businesses:
- A call for HMRC to set up a hotline dedicated to reporting bad practice by umbrella companies;
- A proposed legal definition of umbrella companies which government should use as a starting point for regulation;
- New guidance for all REC member businesses to follow to avoid working with bad-faith, non-compliant umbrellas;
- Re-affirming and clarifying the REC’s Code of Professional Conduct, members’ obligations, and the actions that the REC will take against members who are have found to have breached the Code.
The role of recruiters and the REC
A key part of tackling bad practice by umbrella companies is ensuring that where recruitment businesses use them, they are acting with complete transparency and making sure they conduct full checks on the umbrellas they work with.
To help with this, the REC has published and sent new guidance to all its members on how to avoid working with bad-faith umbrella companies, giving them more clarity about what to look for to ensure that workers’ rights and pay are protected. Alongside this guidance, Neil Carberry has written directly to all REC member recruitment businesses, urging them to conduct rigorous due diligence on their supply chains.
The letter also re-affirms REC members’ duties under the Code of Professional Practice, which requires them to comply with the law and treat their agency workers with transparency and honesty. The REC has a robust complaints procedure to deal with any breaches of the Code, including relating to umbrella companies, and the letter also reiterates that the REC will take appropriate action if a member is found to be in breach.
Government must define and regulate umbrella companies
While employment businesses and employment agencies are fully regulated, payroll providers like umbrella companies are not. One significant barrier to regulating umbrellas is that there is currently no legal definition for an umbrella company – meaning they can avoid any responsibilities that would be associated with regulation.
To solve this, the REC has proposed that government adopts a definition as set out in the Agency Worker Regulations, which could be used as a starting point for regulation of umbrella companies. This would create a level playing field between umbrellas and employment agencies, which are fully regulated, and help ensure that umbrellas can be held to account if they breach their legal obligations.