Posted: November 7, 2019
Category: Employment Legislation & Regulations

Under new employment legislation, agency workers and contractors working through umbrella companies and other payroll intermediaries will be entitled to receive new Key Information Documents (KIDs) from employment businesses as of the start of the 2020 tax year. Primarily provided by the recruitment agency that hires a contractor, KIDs are designed to empower the worker with relevant information regarding pay arrangements and supply chain relationships surrounding any given assignment.

Our Solution

The new regulations are particularly relevant to Solutio’s advanced payroll platform as our software synchronises all data across each entity within the supply chain, which, in turn, ensures accurate documentation, such as KIDs, can be generated in seconds.

Umbrella companies and recruitment agencies who have chosen Solutio, have a myriad of advanced reporting tools (Solutio Analytics) which can be amalgamated into a fully compliant format as demanded by the legislation; Solutio’s cloud and app-based capabilities also dictate that ‘KIDs’ are created in real-time and can be stored and organised within the system.

Deploying Solutio avoids the necessity for expanding payroll teams or clogging-up a company’s procedures with labour-intensive administrative tasks. An overview of the legislation is described below, and readers are encouraged to consider that contemporary tech platforms, such as Solutio, can automate the processes required to ensure compliance.

Background

Commonly known as ‘KID’ guidance or legislation, ‘Providing a Key Information Document for Agency Workers’ is an extension of the Conduct of Employment Agencies and Employment Businesses Regulations (see section 13A) first introduced in 2003. Referred to as simply the ‘Conduct Regulations’, this tranche of legislation was devised in an attempt to regulate the supply of contingent workers to ensure the correct classification of their employment status enabling accurate tax calculations and national insurance contributions.

Over the years, the broad intent of the regulations has been expanded to include ever-more stringent guidelines to minimise the risk of tax avoidance and, in certain instances, blatantly fraudulent activities within the temporary worker supply chain. The impact of the legislation allied to threats of hefty fines and even imprisonment, served as the catalyst for notions of compliance coming to the fore.

Savvy owners and directors soon realised that their recruitment agencies, umbrella companies or professional employment businesses could increase profits by simply ‘coming clean’ rather than focussing on any number of dodgy loopholes. As a consequence, trade organisations that insisted upon conducting compliance audits as a ticket to entry quickly rose to prominence as illustrated by the lofty positions of power currently afforded the FCSA, Professional Passport and APSCo among others.

So, after fifteen years, the ‘Conduct Regulations’ have served to transform the contractor landscape and the impending ‘KID’ rules represent another logical step towards complete compliance. Due to become statute on the 6th April 2020, ‘KID’ will add transparency to every temporary worker assignment whilst strengthening the commercial propositions of companies who embrace the spirit of the regulations.

What is a Key Information Document (KID)?

Comparable to Key Facts page often generated when purchasing a mortgage or insurance policy, a ‘Key Information Document’ in this instance should include the salient information articulating the relationship between the agency worker and the employment business. A KID in this instance should not exceed two A4 pages, be clearly titled and include the following information:

What is included within a Key Information Document?

  • Name of Worker
  • Contract Type
  • Name of Employer
  • Entity Who Pays the Worker
  • Rates of Pay
  • Payment Dates & Intervals
  • Statutory Deductions
  • Non-statutory Deductions
  • Fees for Goods & Services
  • Additional Benefits
  • Holiday Entitlements

Supplementary information can also be included within the “KID’ if desired (and if formatting allows) although it should be noted that the document is not intended to be a comprehensive contract. Moreover, the remit of a ‘KID’ is to provide pay-related headline facts to an agency worker who registers and agrees terms with an employment business after the 6th April 2020. Contractors in possession of existing terms and agreements are not obliged to receive a KID until they sign-up with another employer after the aforementioned date.

Who is Responsible for Providing ‘KIDs’?

As ever, there is a degree of confusion among employment businesses as to which entity is actually responsible for providing the agency worker with Key Information Documents. The text in the legislation consistently uses the term ‘employment business’ which has a variety of interpretations depending on the nature of the worker’s assignment.

A “standard relationship” between the worker and the agency deems that the recruiter is responsible as they actually engage and pay the worker as illustrated by the following graphic:

A flow diagram for the path of income in relation to KID legislation

However, the perennial issues created by the involvement of umbrella companies and intermediaries in the contractor supply chain continue to muddy the proverbial waters. Remembering that the central purpose of ‘KIDs’ is to demonstrate the “path of the worker’s income”, all tax and NI calculations, statutory deductions, pension contributions and margins (or admin fees) charged by the umbrella business must be clearly shown. Quoting directly from the legislation:

“All deductions to both the intermediary or umbrella company’s income and the worker’s income should be clear to the worker within the key information document. The worker should be able to fully track the difference between the gross amount paid by the employment business to the intermediary or umbrella company and the net sum that the worker receives.”

A flow diagram for the path of income in relation to KID legislation

In these instances, employment businesses (usually the recruitment agency), will be required to obtain additional salient information from the umbrella company:

Documentation an umbrella company has to provide to comply with KID legislation?

  • Name of the Employment Business
  • Name of the Umbrella Company (or Intermediary)
  • Who Employs the Worker
  • Who Pays the Worker
  • The Relationship Between the Employment Business & the Umbrella
  • Margin’s Charged by the Umbrella Company

In addition, the KID must include an example statement that illustrates all deductions and fees and how they influence the worker’s net pay. This statement must comprise real figures including, the amount of income paid to the umbrella company by the employment business and demonstrate the difference between this gross figure and the net amount received by the worker.

Record-keeping & Proving Compliance

Ultimately, the employment business has to keep accurate records to demonstrate compliance with the wider Conduct Regulations and relating to all workers with whom they engage. Although the Key Information Documents do not require signatures from any party, employment businesses do have to prove that the worker did receive them; a saved email will suffice and should be retained for twelve months.

Monitoring and enforcement of the legislation will be conducted by the Employment Agency Standards (EAS) inspectorate via targeted inspections and audits.

Useful Links

Solutio Contact Information

To find out more about how Solutio can help recruitment agencies, umbrella companies and professional employment businesses comply with KID legislation, please contact Adam Jordan (Partnership Director) on 07789 488 909 or via adam.jordan@solutio.com, or request a call back here