Umbrella companies and preferred supplier lists

If you are starting out as an IT contractor via a recruitment agency, chances are you will be recommended the services of a select number of umbrella companies (or contractor accountants) when you start your first contract. Most agencies have ‘Preferred Supplier’ lists for this purpose – but this doesn’t always mean that the firms on the list represent the best value for money for contractors.

Although some PSL’s are drawn up from an altruistic point of view, others (particularly in the past) have been drawn up according to the benefits that suppliers can provide to the agencies themselves – typically in the form or referral fees or kickbacks.

Over the years, we have heard many stories about how some agencies pressurise new contractors into signing up with a certain umbrella company, or making it difficult for contractors to start up with an umbrella which doesn’t appear on the PSL.

Impact of new legislation on Preferred Supplier Lists

Given the amount of new legislation which has been implemented in the past decade – including the Agency Workers Regulations (AWR) and Managed Service Company rules, agencies are increasingly keen to ensure that their contractors only use reputable service providers.

Agencies and end-clients need to ensure that they cannot be found liable for either tax liabilities of their contractors should an umbrella company go under, nor be obliged to provide employment rights to contractors who have used umbrella companies who have not complied with the terms of the AWR.

Many agencies will only recommend umbrella companies which have been audited by a recognised organisation such as Professional Passport, or are members of a body such as the FCSA (current members include Brookson, Parasol, JSA, Giant and PlanIT Services).

However, although the appearance of audited / quality checked umbrella companies on any agency’s PSL can only be a good thing from a contractor’s point of view, this doesn’t necessarily mean that the agency does not receive some kind of benefit for recommending particular service providers (even ‘good quality’ ones).

How to choose the best umbrella company scheme

There are many factors to consider when choosing the best umbrella scheme, and appearing on your agency’s PSL should not be the deciding factor.

Other things to consider include the real cost of using an umbrella service, how much experience the company has, what additional benefits you may enjoy, and if you have heard any favourable recommendations from other contractors.

Try our umbrella company tips for some inspiration, and our growing list of contractor umbrella companies to help start your comparison process.