Agency Umbrella Companies Preferred Supplier Lists
It’s something that contractors are coming up against more and more, i.e. agency umbrella companies preferred supplier lists.
It’s where contractors tell agencies that they want to use a particular umbrella company and the agency tells them that they cannot.
The agency tells the contractor that they must use one on the agency’s preferred supplier list or PSL.
Reasons for Agency Umbrella Companies Preferred Supplier Lists
Is this because these are the only umbrella companies that will do a good job for the contractor?
Is it because these umbrellas will be most beneficial for the contractor?
In many cases (perhaps in most cases) the answer to the above questions is No.
Agency Taking Commission from Umbrella Companies
Many agencies are taking commission from umbrella companies for putting contractors their way.
So, the umbrella companies on the PSL may be those who pay the agency commission.
This is unlikely to be legal.
2010 Bribery Act
They put the 2010 Bribery Act on the statute book to stop all of this.
It is illegal for an agency to coerce a contractor into a particular umbrella company.
The agencies think they have got around this by setting up a Preferred Supplier List of umbrella companies.
However, they are still on dodgy legal ground.
Contractors Losing Out Financially
If the contractor loses out financially from using one of the umbrella companies selected for him, or her, then the agency can be in big legal trouble.
Also, any transaction for commission must be absolutely transparent for all parties.
The trouble here is that the agencies seldom, if ever, tell the contractor that they are getting commission for him, or her, from the umbrella company.
The 2010 Bribery Act covers all of this.
So, in this case, it constitutes a bribe rather than commission.
Public Sector IR35 Changes
It is being brought into focus by the recent public sector IR35 changes.
Many public sector clients are now telling contractors that they can no longer operate using their personal service companies.
The Government, and HMRC, want the contractors to pay the IR35 tax.
However, many of contractors’ agencies are telling them that they do not want to run a payroll system for them.
So, they must use an umbrella company
Often the contractor will go out and select the umbrella company that best suits them.
Cannot Use the Umbrella Company They Choose
They then contact the agency who tells him, or her, that they cannot use that umbrella as it is not on the agency umbrella companies preferred supplier lists.
Often this is costing the contractor financially – which is illegal.
This is especially true for contractors who have more than one client.
When agencies force the contractor or freelancer to use particular umbrella companies it may mean them having to use more than one at the same time.
Locum Doctor Losing Out
Here’s what one umbrella company worker says.
“As an example I was speaking to a locum the other day who does shifts at 4 different hospitals and he could do shifts with all of them in a single week.
“Let’s say he does:
“2 days with Agency 1 and they use Umbrella A who charge £18 per week
“2 days with Agency 2 and they use Umbrella B who charge £20 per week
“another 2 days with Agency 3 and they use Umbrella C who charge £28 per week
“1 day with Agency 4 and they use Umbrella D who charge £12 per week
“He now has £78 in Umbrella fees a week. Whereas if he had one Umbrella company who engage with all of his agencies, he would potentially only have to pay one weekly admin charge.”
Affects IT Contractors Too
This would apply equally to IT Contractors who have more than one client at the same time.
So, why would agencies take a chance on breaking the 2010 Bribery Act with all the penalties it has?
I think we all know the answer to that.
Many of them are very greedy and wouldn’t want to lose out on all that lovely ‘commission’ money that they are getting.
They are prepared to skip close to the legal boundary, and often over it, to keep this extra money.
Often this is legally a bribe rather than commission.
This is a scandal waiting to break in the freelancing industry.
I’m told that some of the very biggest agencies are involved.
What Constitutes a Bribe Rather than Commission?
For information on when agency commission from umbrella companies constitutes a bribe see
What Can Contractors Do When Forced Into an Umbrella Company?
So, what should contractors do when they have an umbrella company they like but are told that they have to take one on the agency umbrella companies preferred supplier lists?
They should ask the agency if they are getting commission from the umbrella company.
If they say they aren’t they should ask them to put this in writing.
That should put them on the defensive.
If the agency refuses to do so, the contractor should threaten to report them under the 2010 Bribery Act unless they let the contractor use his, or her, umbrella company of choice.
They could even go further and get a lawyer’s letter sent and see how quickly the agency will back down then.
At some point those involved in this will be part of an investigation that will shake up the industry.
In the meantime contractors can threaten the agencies with exposure to make sure the agency lets them choose their own umbrella company.