What recruitment agencies need to know about risk and compliance

IR35, insurance, contracts… it seems like the list of things agencies placing PSC contractors need to worry about is never-ending. But it doesn’t have to be as complex as you think, and you don’t need to go it alone, explains Sam Cox, Qdos’ Commercial Director.

Contract recruitment is an attractive business model, offering the chance to offset seasonal peaks and troughs, benefit from a consistent candidate pipeline, and earn a higher margin on placements. However, for recruiters in the contract chain placing workers through PSCs, understanding obligations regarding risk and compliance is essential to do business confidently.

Here, our Commercial Director Sam Cox walks recruiters through three key considerations as they look to expand their contractor candidate portfolio.

Understand the level of cover you need

Recruitment agencies come in all shapes and sizes, and so too does the level of insurance cover they need. As Sam explains, this hinges largely on the concept of ‘vicarious liability’. In the context of insurance for recruitment agencies, this comes down to the level of liability an agency has for the actions of the workers they place.

“Within the recruitment space, vicarious liability can become very complex. At one end of the spectrum, you have agencies that place permanent staff under very strong contractual terms, who will have little to no exposure concerning errors/omissions of placed workers. At the other end, you have agencies placing contractors under terms in which they may be accepting full vicarious liability should that contractor make a mistake. Understanding exposure to vicarious liability is always the correct starting point when considering insurance requirements.”

“It comes down to having a thorough discussion about contractual terms, both with the end client and your insurance broker, to determine what type of public liability and professional indemnity insurance you need. It is a lot of work to go through contracts with a fine-tooth comb, but it really is worth it to reduce your premiums and risk. That’s something a good broker is there to help with.”

Keep on top of contractors’ cover

It’s typically the agency’s responsibility to ensure that each contractor they engage on behalf of an end client meets the insurance requirements of that client. If they don’t, they could find themselves liable for any errors or omissions of the contractor they place.

Sam explains, “Whilst claims against contractors are rare, it does happen. It’s prudent for any agency to have measures in place to ensure they aren’t needlessly exposed. To this point, research undertaken by Qdos in 2023 showed that 20% of contractors were unable to evidence insurance that met the requirements of their clients.

Part of the reason for this is that sometimes recruiters – and especially agencies that are busy and have experienced fast growth – either don’t have the time to examine contracts or don’t know what they’re looking for. Requirements will always be specified within the contract between a recruiter and end client, alongside any specific limits of indemnity for those insurances.

That said, insurance documents can vary between providers, and it can be hard for someone without an insurance background to know what to look for when checking a contractor’s insurance arrangements.

That’s why we created the Qdos Contractor Policy Check tool. This can be used alongside Status Review, or independently. It’s an extra layer of protection that ensures that contractors aren’t unsure or misinformed about their business insurance needs, and act as evidence of suitable due diligence. This means that recruiters can be sure that they’ve met their obligations to their end clients.”

Enquire about our Contractor Policy Check service here

Take best practice IR35 advice

 Since the off-payroll reforms of 2021 across the private sector, navigating IR35 legislation has been a minefield for recruiters operating in the contractor market.

Read more: IR35 for recruiters

In most typical contractual arrangements where a recruitment agency sits between the contractor’s PSC and the hiring organisation (end client), the recruitment agency will be the fee-payer. Under the revised rules, this puts them on the hook for tax liabilities even though the end client is responsible for the status determination.

Sam explains that for recruitment agencies, it’s vital to have an effective method of helping clients determine IR35 status, and mitigate potential liability.

“A reliable, effective IR35 tool such as Qdos Status Review is indispensable for recruitment agencies. This is our independent alternative to HMRC’s Check Employment Status for Tax tool (CEST) – a rudimentary tool many businesses have found wholly insufficient in managing their IR35 exposure.

Status Review not only provides robust status assessments and delivers accurate Status Determination Statements, but also provides tax liability insurance covering all parties in the contractual chain.

Naturally, this makes agencies operating in the contractor market a much more attractive option for clients, because it removes so much of the legwork of status determination. Plus, agencies can rest easy that they have an expertly assessed determination should an enquiry arise.”

Explore IR35 Status Review