In a previous article, we explored three ways that recruiters and contract workers can identify a fraudulent umbrella company. However, the majority of umbrella companies operating in the UK are compliant, and yet their reputation is tarnished by unscrupulous players.

This article will explore three ways that ethical payroll firms can set themselves apart from the unethical ones and make it easier for recruiters and contract workers to engage with them.

1.     Build public trust

One of the key issues plaguing the outsourced payroll sector is a lack of trust. With so many umbrella companies identified which do not act within the law, it can be hard for recruiters and contract workers to know who to enlist to manage their payroll.

Building public trust is a key way that an umbrella firm can demonstrate they are compliant with tax and employment legislation and encourage more people to engage their services.

Many non-compliant umbrella companies keep details of their enterprise hidden, for example, by adding false addresses or director's names to Companies House or by making it difficult to get in touch with them. Whilst the register recently inherited new powers to tackle false information, with more than 5 million companies listed and half a million new ones incorporated every year in the UK, the issue will not disappear overnight.

By having open lines of communication with clients and sharing details about key people and operations, it will help to demonstrate the legitimacy of a payroll provider, since people will be able to see work in action. Transparency can also show that a business has been operating for a substantial period of time, which can be an indicator of legitimacy. Unscrupulous firms often close operations within six to 18 months.

Unethical payroll firms may also offer incentives to recruiters to encourage them to select their company as payroll provider. Avoiding any such practices will help a payroll firm to demonstrate that it is ethically sound.

Trust is key. When contract workers and recruiters see evidence that they can trust a payroll company, they are more likely to engage its services.

2.     Get accredited

One of the most straightforward ways an umbrella company can demonstrate they are compliant with employment legislation and tax guidelines is to seek membership of a respected accrediting body in the sector. With the ongoing lack of official regulation in the outsourced payroll sector, the industry relies on a number of private organisations to carry out third party audits of payroll providers and verify their legitimacy.

We encourage every law-abiding umbrella firm to conduct thorough due diligence when selecting an accreditor, including any handling of members' compliance issues, and to choose the one that offers them the best opportunity to demonstrate their compliance.

The PCA is an accreditor committed to improving compliance in the outsourced payroll sector and we run a rigorous audit through one of the 'big four' accountancy firms. As a not-for-profit organisation we are unique in the market, with the overriding goal to clean up non-compliance in the sector rather than seeking to make a profit.

3.     Ensure the paperwork aligns

Recruiters and contract workers can identify a non-compliant umbrella firm through dubious or inaccurate paperwork. It follows, then, that ensuring paperwork is in order and fully transparent will demonstrate to stakeholders that a payroll firm is trustworthy.

Ensuring all payments and deductions are clearly displayed on payslips and that they align with the agreements previously made, as stated in contract workers' Key Information Documents (KIDs), will demonstrate that a firm is acting legitimately and is not engaging in unscrupulous practices like tax avoidance, pay skimming, or withholding holiday pay.

The fee structure for contract workers should also be completely transparent and, as mentioned above, contract workers and recruiters should be able to easily get in touch to resolve any queries or problems they may have.

Demonstrate legitimacy

Many firms and contractors operating in or engaging the services of the outsourced payroll sector are aware that there are unscrupulous practices at play. Therefore, for an umbrella firm to publicly demonstrate that they are acting ethically and are fully compliant with all legislation is vital to set their services apart from those that take advantage of contract workers. It also makes it easier for recruiters and contract workers to select legitimate providers and, thereby, help to decrease the tax avoidance activity prevalent in the sector.