When your umbrella company stops paying wages: a contractor's guide

There are few things more frustrating than not getting paid for work you have done, but unfortunately for some in the contracting world it’s a fact of life from time-to-time.

So here’s what to do where the company you rely upon to pay you is an umbrella company but it stops paying, writes Adrian Marlowe, CEO of Lawspeed.

1. Gather paperwork: Key Information Document, Contract, Timesheet

First, gather and review the fundamental paperwork.

Where you are being supplied by an agency, as in most cases, the agency enters into a contract with the umbrella company which is required to employ and pay you.

Before anything is concluded, the agency should tell you what the key engagement arrangements (including representative payment arrangements) are; in what is known as a Key Information Document (KID).

You should always retain the KID to check against the actual arrangements with the umbrella.

Before you started the work which is now not paying out via the umbrella, you made sure you had an employment contract in place with the umbrella company that reflected the agreed payment arrangements. Then, once the work started, you made sure that you completed your timesheets properly and on time.

Failure to conclude the timesheet arrangements can cause delays, thereby holding up payment to you.

Assuming all three fundamental pieces of paperwork were put in place, not only are you now legally entitled to payment, but you will have in place the maximum protection possible against non-payment.

So what can you do if you’ve got the KID, a contract and up-to-date timesheet, but payments from the umbrella suddenly stop?

2. Try to establish the reasons for the umbrella company’s non-payment

Reasons for non-payment by an umbrella company can be several-fold.

For example, computer error, human error/negligence, non-payment of the umbrella company by the agency, or even insolvency.

Whatever the reason given to you – and do try to find out if it’s not given, take the following steps:

3. Do not delay; inform the agency straight away

Acting rapidly as a contractor out-of-pocket from an umbrella company which hasn’t paid out is key.

As soon as you believe there is or may be a problem, inform the agency in writing (email) and give the agency the opportunity to investigate. Agencies make profit from supplying you and will be concerned that you are not being paid, or there is a risk of it.

So give the agency a chance to sort it out, and if it’s a simple mistake, the agency should respond quickly. If there is delay, or inadequate assurance, then you are entitled to be worried.

4. Consider stopping work

If you are worried, and there is no valid dispute, consider stopping work immediately and inform the client, the agency and the umbrella, giving the reason.

The client is the party that you are most likely to get a quick response from in the chain, since it will be wanting to retain your services.

Please note, many contractors carry on working in these circumstances in the hope that payment will be forthcoming, but this could ultimately be effort for no reward.

5. Make further decisions on the brolly and agency

Hopefully the outcome of the above four actions will be payment to you by the umbrella company of the sums owed.

It is then up to you to decide whether you want to continue working with that agency -- and that umbrella, based on how the whole issue was handled.

What’s the legal position if an umbrella company ceases paying wages?

You should have a claim against your employer, the umbrella company, in the event it stops paying you, and the paperwork in 1), above, is all in order.

If the umbrella is insolvent, unfortunately there is not much you can do except apply to the government for payment.

You can claim for up to eight weeks unpaid wages, holiday pay and notice pay, as I have directed ContractorUK readers to do previously in the event of a non-paying umbrella.

But be aware, this online service is not open to you if you have a contract that is not an employment contract.

As well as claim wages via .gov if your umbrella is insolvent, complain to HMRC

You can complain to HMRC, which should investigate non-payment of sums due as national minimum wage. But this will not help with sums due for commission.

You can also apply to the Employment Tribunal for an order requiring payment.

Ask your recruitment agency…

In addition, always ask your agency if it has arrangements to protect your money, and you could ask for this assurance even before starting work.

Those contractors using contractual terms provided by our company (Lawspeed), may obtain a guarantee of payment from a director of the umbrella company -- and may be able to withhold money representing the value of your wages.

Agencies that have those protections in place may then be able to compensate you.

Complain to the EAS, too

If a Key Information Document had not been issued to you by the agency, you can complain to the Employment Agency Inspectorate, which should investigate any breach of standards by the agency. Breaches are criminal offences.

Also, failure to provide a KID or a correct KID, can give rise to a civil claim which you could pursue in the County Court.

Once there is an impasse over payment -- as with all these kinds of issues, it’s advisable to strongly consider seeking tailored legal advice. But hopefully this article provides a good initial steer on the available options in the unenviable event that your umbrella company ceases to pay wages.