Contracting Matters

The umbrella company market is pretty competitive with a variety of techniques used to attract Contractor business. Some providers use a more direct to Contractor approach featuring fee promotions and big referral fees. Others try to work with Recruitment Agencies to explain how it all works and get the Recruiters to then refer to (usually via a preferred supplier process) the providers that the Agencies work with. Here at Parasol we do a mixture of Contractor word of mouth of referrals (for a decent fee discount) and work closely with Agencies to deliver service efficiency, fast processing and help them mitigate their risks. I will declare that we sometimes send Recruiters a promotional pen, a mouse mat or even the odd donut drop, but that’s the extent really. We draw the line at providing individual recruiters with vouchers, gifts or cash. Surely what provider a recruiter refers to should be based on the principles of service, corporate policy and a trusted relationship that helps the recruiter get the job done.

Now, it is ok to work with an Agency, disclose an incentive program and for the provider to pay the tax on behalf of the recruiter on their own tax settlement. It’s not a great way to do business in my opinion, but it is legal and with transparency, is used (not by us!). However, in 2010 we have the new Bribery Act to consider and what are the implications for these incentive schemes (official and unofficial).

If a person is being paid without the consent of his employer for passing leads to another business then they would fall within the bribery act. The bribery act creates an offence when “an individual gives a financial or other advantage to another person in return for a person improperly performing his function”  The issue arises if the agency are unaware and say a recruiter has a private arrangement with an umbrella company for the passing of leads in return for a payment (a bribe). However, there will be a number of offences apart from the act of bribery. If the recruiter does not declare the payment then he is likely to have defrauded HMRC he is also likely to be found to be stealing from his employer as his employer will most likely want the payment so his employment could be terminated under gross misconduct and the agency could prosecute him for theft. Until recently the practice largely went on unregulated and is difficult to prove but with the new act in force, Agency owners are going to be more keen to ensure that their future business performance is not blighted by messy cases or reputational damage. I would also challenge the owners of these same businesses to consider the impact in a possible sale of the business in relation to due diligence discovering material bottom line contributions, I think that could also negatively impact valuations.

So it must seem a bit obvious to state, but if an Umbrella comes asking for business on the back of cash or other material incentives, then be really very careful. Todays short term gain could be tomorrows serious pain.