Recruitment agencies have the opportunity and responsibility to protect their own long-term brand reputation and mitigate the chance of financial risk to themselves, but also to add real value to their service proposition to contractors by taking more proactive ownership of their supply chain.

Many recruitment agencies still abdicate responsibility for selecting the Umbrella Solutions and Accountancy Service providers they work with as part of their supply chain. Instead, the decision is left to the contractor themselves or, in some cases, to individual staff members’ personal preference.

The main problem here is that neither the contractor or agency employee is guaranteed to have the same appreciation of the issues, similar appetite for risk or personal corporate responsibility that the recruitment business owner or director needs to have.

Without generalising (too much), contractors tend to have a higher appetite for risk than the general working population – let’s face it, they wouldn’t be contractors if they weren’t more prepared than most to embrace uncertainty to gain a financial or lifestyle-related reward. Of course, financial gain is one of the main reasons people give for their decision to become a contractor. So, if a contractor is promised a higher rate of return or if the operating model seems to be legitimate (or legitimate enough to make it feel like an acceptable risk to them), a contractor might select an accountancy provider that you wouldn’t have. The contractor may also come to this conclusion if nobody has told them any differently or if they have not been provided with advice and support to help them understand the implications of their choice.

Similarly, it is doubtful that any recruitment business owner or decision-maker would knowingly delegate the selection of their energy provider, IT and telecoms services, or professional advisers to a junior member of their team. This is because the junior wouldn’t have the big picture around overall business needs and strategy, corporate governance responsibility, knowledge and training, personal risk of loss should a decision go badly, or the experience to think about the good of the business as a whole rather than short-term personal benefits. You definitely wouldn’t do it if you thought that some of these prospective providers would proactively target your staff with referral incentives which you as their employer didn’t pre-authorise.

The thing that has fundamentally changed in recent years is the extent of the corporate risk which applies to recruitment businesses, their directors, and their end clients should the supply chain engage with a non-compliant Umbrella Solution or Accountancy Services provider. The recruitment supply chain has never been under more scrutiny. Increasingly, the responsibility for decision-making has been moved by successive legislative changes from the contractor to the (presumably) more risk averse recruitment business or, in the public sector, the end client.

So what can recruitment agencies do to mitigate risk for themselves and for their contractor population?

1. Own your supply chain

Have a clearly defined selection process to ensure that nobody but you selecst a supplier given that the financial risks and legislative obligations have never been more clear. Ideally, make things simple for your staff, clients and contractors by maintaining a formal preferred supplier list which you can demonstrate have been carefully selected following a robust audit, and with whom you can have a trusted partner relationship based on consistent levels of service and compliance.

2. Assess the financial strength of your supplier

Where recruitment agencies do due diligence on prospective suppliers they often omit to ask, or fail to thoroughly vet the financial stability of the supplier or assess how resistant the supplier would be to a cash-flow problem.  A good analogy is the way in which a bank has to demonstrate they have sufficient liquidity to withstand a system shock. You want to know that the business can meet all their obligations and have a strong balance sheet which means that the money you pay to them is in safe hands.

3. Require evidence

Anyone can fill in a questionnaire once a year, but it is far harder to avoid scrutiny if you insist on the documentation and evidence to back up compliance claims; this could include audited financial accounts, evidence of their ownership and structure, and example payslips using scenarios you define. Of course, it takes specialist knowledge and resources to interpret and forensically investigate suppliers, consider utilising a strong 3rd party compliance provider like the Full Membership accreditation operated by the FCSA.

4. Educate your staff

Make sure that all your staff understand the rationale for having a controlled supply chain, what the benefits are for the business, for them as individuals and just as importantly for their contractors. In an ideal world, your whole team would be able to provide good advice to a contractor on their options, or would have trusted adviser relationships with a supplier like Brookson who are prepared to offer objective help and advice to support your business.

Given the increasing complexity of performing employment status (supervision, direction and control and IR35 compliance checks) – particularly for businesses supplying labour services to the public sector – you may wish to give your teams explicit guidance on what they should help their contractors with personally, and where they should refer that individual to a specialist.

5. Be brave

It can sometimes be difficult to stand your ground when a particularly hard to find or scarce candidate challenges your advice and process, perhaps even insisting that you let them use their preferred option as a condition of accepting the role. Encourage consultants to take the long-term view, where protecting your brand reputation and being a trusted adviser to client and candidate alike is a better bet than winning the battle but losing the war.

If you would like to get in touch with Brookson’s Recrutiment Agency Support Team for more information please give us a call on 01925 694521 or email agencies@brookson.co.uk.