Referral fees are contentious as they are, basically, paying for business and, in theory at least, those who pay more will get more business regardless of whether or not their business model will offer the sort of service the client is looking for. These payments were particularly prevalent in the personal injury claims market and in April 2013 the Solicitors Regulation Authority took the step of prohibiting the payment of referral fees in personal injury cases. This approach may be extended to other markets if it is felt that the payment of referral fees take precedence over the welfare of the clients’ customers.
With umbrella company referrals the legal position is that it all depends how they are being paid and to whom. If the payer intends the payment of the fee to improperly secure business or an advantage in business then the Act may be being violated. For instance, if an umbrella company took brown envelopes full of cash or pre-loaded credit cards and gave them to recruitment consultants in exchange for referrals then there would be a contravention of the Bribery Act. All recruitment agencies should have policies in place to ensure that their consultants know that they cannot accept gifts of money from umbrella companies as, even if there is a contravention of the Act, the agency will be able to present an affirmative defence if they have ‘adequate procedures’ in place.
As long as companies are transparent in their payment and acceptance of referral fees and the transactions are clearly documented there should be no contravention of the Bribery Act. Within the recruitment industry trade bodies have introduced their own codes of conduct to ensure that their members are kept compliant. APSCo for instance included the following statements in its code of conduct following the introduction of the Act:
4.3. Referral Fees
Members shall have a procedure in place to ensure that any referral fee or other financial incentive paid to or received from any other staffing company, umbrella company, intermediary, or any other business in the supply chain is not in breach of relevant local legislation. APSCo expects members to adhere to the following best practice with regard to such fees to ensure that:
4.3.1 they are not disproportionately high in relation to the value of the service provision;
4.3.2 all employees adhere to the member’s referral fee policy;
4.3.3 when entering into referral fee/financial incentive arrangements all parties have complete transparency with regard to the payments made and/or received; and
4.3.4 members never apply undue pressure to any other staffing company, umbrella company, intermediary or other business in the supply chain to offer a referral fee or any other financial incentive
Not only does this type of recommendation help to ensure that recruiters will not fall foul of the Bribery Act but it will also ensure that recruiters work with umbrella companies that offer their candidates excellent service and security. Referral fees which represent 75% or 80% of an umbrella company’s turnover are totally unsustainable and could result in the company using money which is owed to HMRC to maintain their business http://www.insidermedia.com/insider/south-east/73955-contract-loss-forced-umbrella-company-administration.
Contractor Umbrella do not participate in any paid referral schemes.
Lisa Keeble is the Managing Director for Contractor Umbrella Ltd, one of the UK’s Most Respected Umbrella Companies and founder member of AllUmbrellaCompaniesAreEqual.
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