As a recruitment agency working with contractors, statutory payments are important to get to grips with.
Questions often arise about who is responsible for handling statutory entitlements such as holiday pay, sick pay, and parental leave. This responsibility varies depending on the employment model contractors operate under. The model could be direct agency PAYE employment, limited company, or umbrella company arrangements.
As we’ve been asked these questions ourselves, we’ve focused this blog post on the role of umbrella companies in managing statutory payments and what this means for recruitment agencies.
What are statutory payments?
You probably already know the basic of statutory payments. Simply put, they are legal entitlements designed to protect workers. We’ve listed the main ones below.
Firstly, Statutory Sick Pay (SSP) is paid to eligible workers who are unable to work due to illness.
There are also Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP) and Statutory Adoption Pay (SAP), which are paid to workers taking time off for childbirth or adoption.
And also, Holiday Pay. This one ensures contractors receive paid time off in line with the Working Time Regulations.
Who handles statutory payments?
When contractors work through an umbrella company, the responsibility for statutory payments shifts from the recruitment agency or end client to the umbrella company.
It goes something like this…
Contractors employed by umbrella companies are treated as employees. This means the umbrella company, as the employer, is legally responsible for processing statutory payments.
The umbrella company calculates and administers statutory payments, ensuring compliance with HMRC regulations. Recruitment agencies do not need to directly manage these payments, reducing administrative burdens.
If contractors choose to accrue their holiday pay, umbrella companies will deduct this accrual amount from the gross assignment income and hold it until it is claimed. Recruitment agencies should be aware of how this accrual process works to communicate effectively with contractors.
Benefits for recruitment agencies
Reduced administrative burden:
Since umbrella companies handle statutory payments, agencies can focus on core recruitment activities.
Compliance confidence:
Umbrella companies specialise in employment law compliance, ensuring statutory payments are correctly processed.
Enhanced contractor experience:
Contractors receive consistent and compliant payments, which helps agencies build trust and long-term relationships.
Considerations for agencies
While the umbrella company is responsible for statutory payments, recruitment agencies still play a vital role in ensuring a smooth process. Here’s how:
Partnering with a reputable umbrella company:
Work with umbrella companies that prioritise compliance and transparency. Most umbrella companies will fund statutory payments from their own income, but some will invoice the recruitment agency for this cost. If your agency is being invoiced for statutory payments, please speak to us!
Clear communication:
Inform contractors about how statutory payments will be managed and set expectations early.
Due diligence:
Stay updated on changes to statutory entitlements and ensure your umbrella partners remain compliant with evolving legislation.
In conclusion
Statutory payments are an essential part of ensuring contractors receive fair treatment and legal entitlements.
For recruitment agencies, working with a reliable umbrella company can simplify this process and enhance overall compliance.
Strong partnerships and clear communication will help agencies support their contractors while focusing on growing their business.