Joint Employment
The agreement between a minimum of two organisations within a contractor supply chain has become a highly common employment model for Umbrella Companies and Contract Agencies. The recruiting agency and payroll middleman are the most prevalent entities in this chain, although they are not the only ones.
Are Joint Employment Arrangements Legal?
This sort of arrangement is generally seen as an illegal tax avoidance tactic. These types of agreements, on the other hand, are perfectly legal as long as they are properly recorded, preserved, and followed.
Contract Agencies are allowed to charge VAT on invoices to the hirer since they found the worker, but assignment expenditures are not. Payroll providers can also charge recruitment contract agencies a separate fee for “margin,” which is also VAT-free. It is recommended that contractual agreements like this be agreed upon on a PAYE basis to reduce confusion and difficulty for employees. Agencies do not charge the worker for these services in a joint employment agreement.
What Kinds of Documentation Are Necessary for Joint Employment?
It is vital to pay attention to the correctness of the information you provide when creating documents such as assignment proposals, staff schedules, and invoices.
The nature of the connection between the joint employers must be properly described to avoid misunderstandings or blurring of one another’s varied duties to the contractor. In most cases, a recruiting agency is in charge of finding work for the contractor, whereas the payroll intermediary is in charge of processing deductions, payments, enforcing employment laws, and handling grievances.
Why is Joint Employment a Beneficial Arrangement?
If there is a true joint employment agreement in place, there is no VAT paid on the cost of employment. HMRC confirms this in ‘Supply of Staff and Staff Bureaux (VAT Notice 700/34)’.
In general, it is a more appealing approach to contract agency recruitment than an umbrella solution. The Joint Employment arrangement is particularly beneficial in the healthcare and medical, charitable, banking, and financial sectors.
Following the obvious cost savings for organisations, follows the separation of duty between two entities. A worker may contact the payroll provider if they have any pay-related issues, and a recruiting professional can help them locate work.