Contractors' Questions: Can the agency refuse to pay my brolly?

Contractor’s Question: I’m on assignment but my recruitment agency refuses to release my salary to my chosen umbrella company, as the agency feels the umbrella company is not compliant, despite releasing funds to them in the past. It seems they no longer like the brolly.

The agency has a list of umbrellas to which they say I can choose from, all of which offer a lower take-home pay than my current umbrella company. What rights do I have to demand payment to my current umbrella?

Expert’s Answer: Fundamentally, whether or not the agency can refuse to make the payment to the umbrella company will depend on the contractual terms it has in place with it and whether there is an opt-out from the Conduct of Employment Agencies and Employment Businesses Regulations 2003 in place. Under those regulations, in the absence of a valid opt-out, the agency cannot withhold payment to your umbrella as it is regarded as a ‘work-seeker’.

The agency may be unwilling to pay the umbrella in question because it is concerned about the model the umbrella is operating (for example that insufficient taxes are being deducted). Agencies are rightly concerned about legislation which can give rise to the transfer of a tax debt deemed by HMRC, for example under the Managed Service Company legislation. For this reason, agencies will often have their own preferred supplier list of umbrella companies which have been audited and have demonstrated that their working practices do not give rise to this risk.

Furthermore, the fact that one umbrella provides a clearly more advantageous option to you than another may itself be cause for concern. If the correct taxes are being paid, aside from the umbrella’s overhead, the overall payment should be similar regardless of the provider.

In conclusion, even when an assignment is ongoing, there may be a term in the agency’s agreement with the umbrella company that will allow the agency to withhold payment in certain circumstances and also to potentially terminate an assignment. In such cases whether or not you (i.e. through the umbrella company) can demand payment in these circumstances will depend on the contractual terms in place.  

The expert was Ben Grover, senior legal consultant at recruitment law firm Lawspeed Limited.