Key Information Documents: what contractors need to know

One regulatory change which unlike private sector IR35 reform did come into force in April 2020 was the Key Information Document and, like the off-payroll framework, it impacts contractors in key ways, writes Joanne Harris of Parasol Group.

KID and Covid

But their story begins back in 2017, when the Taylor Review of Modern Working Practices was published. After the review, the government accepted the majority of the recommendations in what it called the Good Work Plan, which set out the government’s vision for the future of the labour market. It was a vision heavy on the increased rights for all workers, as well as more transparency between employers and agency employees. And it’s here that contractors become beneficiaries.

However the start of the 2020/21 tax year saw businesses de-prioritise anything that wasn’t related to the challenges of the COVID-19 pandemic. Nonetheless, at the very same time, some of the Good Work Plan was enacted into law, making it mandatory for all agency workers to receive a Key Information Document (KID), or key facts page, before they actually start work.

Whose responsibility is KID anyway?

Issuing a KID is the responsibility of the employment business. Agency workers must receive the documents before signing contracts with the employment business, regardless of how they intend to be paid. Unlike other parts of the 2003 Agency Conduct Regulations, there is no ‘opt-out’ for KID.

So as per the government’s intention, and Matthew Taylor’s before that, the legislation came into force in April to help temporary agency workers gain a better understanding of the deductions made from their agreed rate, and a better understanding of how this impacts their net pay.

What should be included in a KID?

Under the new legislation, Key Information Documents are required to state:

• The employer name, and who is paying the worker (if the latter is different)
• Information which relates to the relationship between the “employment business” and the “work seeker” or umbrella company if there is an umbrella company in the supply chain
• The details of any deductions (statutory or otherwise) that will affect the worker’s pay
• Employee benefits (e.g. health insurance)
• Estimated net payment after all deductions have been taken into account
• Pay frequency
• Any statutory deductions (e.g. tax, national insurance)
• Any non-statutory deductions (e.g. private health care)
• Fees for goods and services
• Any additional benefits
• Holiday entitlement

Pay illustration

Each KID must demonstrate how deductions made will impact the worker’s pay. This illustration of pay does not have to be precise but must use actual representative figures.

A representative example statement should take the form of a table, highlighting a work-seeker’s income and how deductions will be applied. It should first state the gross pay, before listing all deductions, fees, charges and benefits that will impact the take home pay amount.

If a contractor is engaged via an umbrella company, the pay illustration must also include all deductions made from the agreed ‘umbrella rate’.

What if employment terms change after a KID is issued?

Issuing a KID is the responsibility of the recruitment agency, so if a change to the contract is made after the initial documents are produced, an updated KID must be issued within five working days of the change.

Workers who were already engaged on an assignment prior to April 6th 2020 will not need to receive Key Information Documents, as the legislation is only for work-seekers who start an assignment after this date.

If there is a change after this date which impacts upon the information included in the KID, for example a change of umbrella company, again a new KID must be issued within five working days of the change.

However, recruiters can rely on information presented to them by third-parties including umbrella companies, as they may not directly have this information themselves  

Therefore, in the event of a mistake on the document, recruiters will not be held accountable if it relied on information provided by a third-party.

What do agency contractors need to do?  

 Before accepting a new role, work-seekers should ensure they receive KIDs detailing the journey of their income from the employment business, through an umbrella company if applicable, and including their final net amount.

Contractors should thoroughly examine each KID they receive, as the details within them may differ from role-to-role. This will allow them to raise any queries about their contract before agreeing to it, encouraging open communications between both parties.

The government believes this new approach will stop any confusion regarding what deductions have been made and why, increasing pay transparency. Time will certainly tell!

Editor's Note:The author, Joanne Harris, is a technical commercial manager at Parasol Group, which has developed a tool that generates worker KIDs, to help agencies with their compliance duties and admin responsibilities.