Olivia Spruce - PCA Director and CEO of healthcare recruitment firm, Positive Healthcare 

MYTH: All recruitment firms handle the payroll function for the contract workforce they manage.  

Not at all. Some recruitment firms may handle payroll, as we do at Positive Healthcare, but in many cases payroll is handled either internally by the direct employer or outsourced to an umbrella company.  

Where payroll is outsourced, recruiters may put forward a particular umbrella company for their contractors to be paid through or offer a list of providers which the recruitment firm has vetted and believes to be compliant. Workers will likely be obliged to use one of these companies, but I would always recommend that the individual also carries out their own due diligence to make sure there are no warning flags around the umbrella company that will pay them, particularly if the take-home pay seems unusually high. It's always a good idea to keep an eye on the pay every time it comes in to check it's in line with what you were expecting. 

MYTH: Recruiters always know how to spot tax avoidance schemes. 

Many people believe a recruitment firm will be able to spot any tax avoidance schemes in outsourced payroll, but we are not legal or tax experts and many of these operations are very sophisticated. This means that despite our best efforts, sometimes we cannot identify where illegal activity is occurring.  

Recruitment firms do have a duty of care and should always carry out extensive due diligence on any third-party providers and we do know the common signs to look for. However, unfortunately, we are not always able to spot the discrepancies in our contractors' pay packets or identify where tax evasion schemes are in operation. This is why many recruiters also rely on accrediting organisations, such as the PCA, who have carried out thorough due diligence to ensure the umbrella company is compliant with all tax and employment regulations. 

The recent government guidance to recruiters on how to spot tax fraud is useful, but what will really make a difference is regulation of the umbrella company sector. Regulation would clean up the outsourced payroll sector and make it more straightforward for hiring firms to be sure that they are choosing legitimate suppliers. Of course, this would also protect workers from such activity. We will have to wait and see if the new government will respond to the sector's long-standing call for regulation. 

MYTH: There is only one approved accreditor for umbrella companies operating in the healthcare sector.  

This is, of course, not the case in the healthcare sector. No individual outsourced payroll accreditor has been officially approved by government.  

This means that recruitment firms are not forced to choose an umbrella company that has been 'approved' by a particular accrediting organisation but can do their own research.  

If a recruiter insists on only using umbrella companies that are members of a particular accrediting organisation, I would recommend that the contractors on their books, at any level, also carry out their own research into the accrediting organisation and the umbrella companies that they endorse, ideally before being looped into payroll. It should not be necessary to lay this burden on the contractor, but for now, whilst the sector remains unregulated and rife with fraudulent activity, it is worthwhile to protect themselves from a future unexpected bill from HMRC. 

MYTH: Contractors hired through a recruitment firm are not at risk of pay skimming or tax evasion schemes. 

Any contractor paid by an umbrella company faces the risk of falling victim to a tax evasion scheme if they have the misfortune of coming onto the payroll of an unscrupulous operator. These are run by a minority of umbrella companies, but the damage done by the few that do take advantage of contractors' payslips casts a shadow over the entire industry.  

Contractors should always be wary and continue learning about the warning signs that may indicate that their pay is being manipulated and contact HMRC if they believe they are being taken advantage of by a recruiter, employer or umbrella company. 

We have also previously written about ways to identify a fraudulent umbrella company here.