Non-payment by an umbrella – where do agencies stand?

When agencies engage with umbrella companies, they rely on the umbrella making payments to contractors timeously and generally these arrangements work very smoothly, with payments being made either immediately, or very shortly after, receipt of funds from the agency. However, when things go wrong and the individual contractor does not receive a payment, the reality can often be that the agency is faced with a complaint by the contractor. So where does an agency stand if an umbrella fails to pay a contractor?

Theresa Mimnagh, associate director at Lawspeed advises; ‘As is the case with any potential dispute the particular circumstances have to be considered, including the reasons for non-payment, but typically, non-payment will occur for one of several reasons including because the umbrella has not been paid, it is unable to pay, for example, due to insolvency, the individual owes the umbrella money which the umbrella is recovering, or administrative or practical difficulties.

Save where the umbrella simply provides an outsourced payment function and is making payments on behalf of the agency, payment issues should usually be addressed directly between the individual contractor and umbrella, as the umbrella is the party contractually obliged to make the payment.  Agencies will not normally have any direct payment obligations towards the individual, and therefore have the option to simply advise the individual to take up the matter with their umbrella. This approach is likely to be the most appropriate where payments have been delayed because of problems with the umbrellas’ own systems.

There have been some recent high-profile examples of umbrellas being the victim of cyber-attacks, which have, in some cases, resulted in the shutdown of systems and delays to payments. This has no doubt caused umbrella workers to complain to their agencies. Whilst the delays may technically mean that the umbrella is in breach of its contract with the agency as well as the individual, it may seem harsh to pursue this where a breach has been caused by the criminal activity of third parties and is beyond the umbrella’s control. However, that is not to say that agencies, as part of their due diligence and review of preferred umbrella suppliers, should not review the level of communication and information provided by the umbrella, how swiftly operations can be put back on track and what steps have been taken to prevent such actions and disruption.

Agencies need to be careful where the umbrella fails to pay the worker due to non-payment by the agency/hirer, as this can have potential consequences under the Conduct Regulations and AWR. However, if the non-payment is due to the insolvency of the umbrella, there may be steps an agency can take to allow for payments to be made directly to the worker, although this will depend upon the strength of the contractual terms in place between the agency and the umbrella.’

Theresa continues ‘Whilst it is difficult to protect completely against some risks, particularly where businesses have been subject to criminal attack, it is important that agencies understand the potential risks and take prudent steps to mitigate against those risks, when engaging with umbrellas. Having strong and protective contractual terms in place at the outset is always the best starting point.

Theresa Mimnagh is Associate Director at the recruitment and employment law specialists Lawspeed.
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