A preferred supplier list, or PSL, is a list of pre-vetted suppliers that you as a recruiter are happy to work with. It's common practice for recruitment agencies to ask their contractors to choose an umbrella company from their PSL, rather than allowing them to find their own umbrella.
By using a PSL:
You can maintain control of your supply chain,
Protect yourself and your contractors from compliance issues,
Improve efficiency
Concentrate on your core business in the knowledge that your contractors are in safe hands.
Why should recruiters use a PSL?
The main advantage of using a PSL is that it puts you in control. It means you’ve chosen all the umbrella companies you work with deliberately, which can improve many aspects of your business. The alternative is to allow individual contractors to choose their own umbrellas without guidance, which could leave you dealing with hundreds of different companies, about which you know virtually nothing, which is not efficient and can be risky from a compliance point of view.
Why recruiters should care about compliance.
The term “umbrella company” is not protected, and not everyone using it is capable of, or interested in, doing things properly. We’re still hearing about “umbrella companies” who are, in reality, little more than risky tax avoidance schemes. These companies represent a serious financial, legal and reputational risk for any recruiter or contractor who gets involved with them.
A genuine, compliant umbrella company will offer employment and as an employer, they have a host of legal responsibilities, including but not limited to:
Running payroll correctly, including the deduction of tax and NICs, and correct reporting to HMRC.
Ensuring contractors have access to holiday pay.
Correctly administering statutory payments for sick pay and maternity/paternity pay.
Provision of a compliant workplace pension scheme for all qualifying employees.
Demonstrating compliance with the Agency Workers Regulations.
Verifying contractor expenses and ensuring they are all allowable.
If you trust the wrong company and they get any of these things wrong it could cost you money, lose you contractors and clients, and damage your reputation. It’s always been risky to work with any umbrella company without properly vetting them, but with the Criminal Finance Act in 2017 that risk became even more severe as the new criminal offence of failing to prevent tax evasion came into force. As a result, a recruiter can be held criminally responsible if their suppliers help contractors to evade taxes, even if the recruiter was not involved in the evasion offence itself. If there was any doubt, taking control of your supply chain with a PSL of vetted suppliers is no longer just a sensible precaution, it’s a vital and necessary step that recruiters must take to protect their business.
How can a PSL help improve efficiency?
Without a PSL, you’ll be relying on contractors to source their own umbrella companies and they’ll do so using their own criteria, with varying levels of care. Aside from the fact that they’ll almost certainly encounter the wrong kind of company at some point during their search, this will leave you working with many different suppliers and you won’t be able to maintain much of a relationship with each one. This means:
Vetting each one for compliance will be extremely time consuming. This will either slow down your contracts process, potentially losing you business, or leave you at risk.
Each supplier will have their own processes for contracts, invoicing, emergency payments and contractor queries. Each of these will have to be managed by your staff, at a cost to your business.
Your accounts team, your contracts team and your consultants will have a different list of contacts, and a different set of relationships to manage, for every supplier. This will make queries difficult to resolve, and they will be common due to the many different processes involved.
The day to day reality of managing contractors could make this situation extremely inefficient and chaotic. In a competitive market where recruiters often compete to retain contractors and clients, this kind of chaos can really hurt your business.
By contrast, imagine that you had just one trusted supplier.
The process of vetting your supplier is already complete, so you don’t have to choose between efficiency and protecting your business.
Your contractors have no research or work to do – simply pass them into your supplier’s steady hands.
A close partnership will allow you to integrate your systems, creating seamless processes for contracts and invoicing.
Your staff have one set of contacts, and can form close working relationships with them. Robust lines of communication make issues rare and easy to resolve.
You’ll save time and money, and your contractors will have a better experience, leaving them time and space to do a better job for your clients.
What should you look for in an umbrella company?
The most important things an umbrella company can be are trustworthy and expert. Employing contractors is not a simple matter, and it gets more complex all the time as legislation changes and the administrative burden on employers increases.
You need to be able to trust that your umbrella has the knowledge, the ability and the desire to do things properly so you can concentrate on placing contractors with your clients.
Look for established companies, who will have experience of adapting and adjusting to new legislation and changing industry circumstances.
Take the opportunity to choose a supplier who will help you to retain contractors. Look for a company with quality and service at the heart of their operation, who can demonstrate that they care about your experience, and about your contractors' experience too.
Why choose Orange Genie?
Orange Genie support UK contractors with a full range of compliant solutions, including umbrella employment, specialist accountancy services, and CIS solutions, so whatever the circumstances we have the best solution for your contractors.
Our expert team will ensure that each contractor gets the best possible advice and support throughout their contracting career.
After more than a decade supporting recruiters we’re established industry experts with compliance at the heart of our business and a well-deserved reputation for excellent service.
All our contractor employees have access to Orange Genie Companion, our amazing contractor benefits platform. It's packed with benefits and services to help your contractors make their money go further, care for themselves and their families, and get more out of contracting. Companion has proved invaluable in increasing contractor engagement and aiding retention for our agency partners.
If you need help or advice creating your PSL, or if Orange Genie can help in any way, please contact us on 01296 468483 or email recruiter@orangegenie.com