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The legislation that introduced Key Information Documents (KID) was largely overshadowed by the higher-profile IR35 reforms in the run-up to 6th April 2020. For employment businesses busy preparing for the controversial reforms to off-payroll working, the introduction of KID understandably slipped down the agenda.
Unlike the reforms to off-payroll working which were deferred until 6th April 2021, the legislation introducing KID went ahead as planned on 6th April 2020 at what was a challenging time for the recruitment industry.
Arising from The Good Work Plan, Key Information Documents attempt to increase pay transparency for agency workers and provide key information regarding the relationship between the work-seeker and the employment business. It is a key feature of the legislation that the KID must be provided prior to agreeing on terms of engagement.
The legislation that introduces the KID is prescriptive, even down to the length of the document, which must be no longer than two A4 pages and easy to understand. The purpose of the KID is not to outline all the terms of the contract, but instead to outline key information.
A new KID must be issued to the worker or work-seeker when the facts contained within it change. This must be within 5 working days if there is a change after terms have been agreed.
This is straightforward enough where a work-seeker is directly employed by the employment business. When the worker is engaged by an umbrella company, ordinarily an employment business would not be aware of changes that now necessitate a new KID being issued to the worker, for example, the introduction of a student loan payment or private pension contributions.
Umbrella companies must work closely with their agency partners and agree a process for communicating changes to ensure that the employment business can meet their compliance obligations.
Whilst at all times, the responsibility for providing a KID rests with the employment business, the guidance recognises that this information may not be readily available and states that employment businesses are free to rely upon any information given to them by third parties, such as umbrellas, where they do not have that information themselves. Umbrella employers have a critical role to play in helping ensure the accuracy of the information provided.
All KID must outline the relationship between the employment business and the work-seeker and include a representative pay statement.
In addition to government guidance, BEIS has produced useful templates for PAYE, Umbrella, and PSC working. Helpfully, REC has further developed and explained these templates and you can view these here.
Where a work-seeker will be employed by an umbrella company there are additional requirements for the KID. This includes confirmation of who is responsible for paying the worker, confirmation of the employer (both should be the umbrella company) and any opt-out of the Conduct Regulations.
The pay statement lists all deductions, statutory or otherwise that will be made from the invoice paid to the umbrella company for the pay period. Whilst this does not need to be updated for changes to assignment rate, it should give the work-seeker a realistic representation of the impact of the deductions that will be made. To produce the KID for work-seekers that could potentially become umbrella employees, employment businesses will need to work collaboratively with their umbrella suppliers. Aside from differences in margin, there may be differences in the basis of auto-enrolment pension contribution, holiday pay, and other benefits that should appear in the KID.
Key Information Documents do mean additional administration for employment business and umbrella employers, however, this push towards greater transparency should be regarded as a positive move for the industry. The KID offers agency work-seekers a fuller understanding of the impact of the different ways of working on their pay and benefits. Being better informed at the work-seeker stage will reduce the confusion as to what is included in umbrella/limited rates and how this compares with gross pay rates.
The legislation has improved collaboration between umbrella employers and employment businesses and increased transparency in these relationships. A welcome consequence of this additional scrutiny is that it is easier to identify non-compliant practices, good news for compliant umbrella companies, and indeed, everyone else in the supply chain.
The REC has produced template KIDs for PAYE agency workers, umbrella workers, and personal service companies ready for you to use – made available to you via FCSA with their kind permission. Download here:
This article was written by Joanna Harris, Technical Commercial Manager for FCSA Accredited Member Parasol.