In 2017, Matthew Taylor put forward a number of recommendations to help improve UK employment law. The government took on board the majority of Taylor’s suggestions and in late 2018, outlined their legislative responses in the Good Work Plan.
One such amendment, made to the Conduct of Employment Agencies and Employment Regulations 2003, meant that from 6th April 2020 any worker engaging with a new agency needs to be provided with a Key Information Document (KID) to provide a clear overview of the model they will be paid under.
What’s the purpose of the KID?
After successfully securing an assignment, workers often face the challenge of understanding various pay options. Interpreting different rates and employment deductions can be tricky, especially for those looking to be paid via an umbrella company.
The common mistake made by agency workers is confusing the contract rate quoted by their agency with their actual pay rate. When using an umbrella company, employers’ costs such as Employer’s National Insurance, Apprenticeship Levy and the Umbrella company margin are taken from the contract rate provided by the agency. When displayed on their payslips, these deductions can seem misleading to workers and are often the root of queries, complaints and at worst, tribunal action.
The introduction of the KID aims to put an end to this confusion. When issued correctly, the KID should outline transparently any deductions or fees made throughout the supply chain to show workers how these affect their net take home pay (the hope being of course that workers will better understand their actual rate at an earlier stage and crucially, before any terms are agreed with the agency).
KID mythbuster
In our experience however we have found there still to be much confusion within the industry around the issuing of KIDs (in particular, in respect of what the documents need to contain and when they need to be issued) and find many contractors still unaware of what a KID even is. With this in mind, we have compiled a list of what we find to be the most common KID misconceptions below.
What should the KID include?
The regulations require the KID to include:
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Basic information about the worker’s contract, minimum pay rates and pay arrangement.
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All statutory and non-statutory deductions to be made to a worker’s pay. For statutory deductions such as PAYE tax, this can just be an explanation that the deduction will be made. However, for non-statutory deduction and fees (such an umbrella company’s margin), the document must either state the exact amount to be deducted, or explain how the deduction is calculated.
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Any holiday entitlement and non-monetary benefits the worker can expect to receive.
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A representative example statement to demonstrate how the listed deductions will be made to an illustrative rate of pay. Real numbers must be used in the example statement, as opposed to simply listing the types of deductions or their method of calculation. However, the figures may be estimated and do not need to exactly reflect the specific rate of pay subsequently received by the worker. Ultimately the pay statement should demonstrate in a realistic way the deductions made to a proposed rate of pay and how these affect the take home pay.
How should the KID be laid out?
The Government guidance reiterates that the KID should:
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Be straightforward to understand,
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Not exceed two pages of A4 in length,
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Be clearly labelled
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Include a brief explanation about its purpose and state the contact details of the Employment Agency Standards (EAS) inspectorate at the top.
If companies are editing the templates available on gov.uk then they should be careful therefore not to remove these required fields.
How can PayStream help?
Although the law is clear that it is the responsibility of the recruitment business to provide the KID to the worker (and to any relevant intermediary), we do of course work closely with our agencies to ensure they can provide their workers an accurate overview of the deductions, and benefits, of each model.
PayStream already provide each contractor prior to them joining our employment a personalised illustration showing how deductions to the contract rate affects their net take home pay, and all payslips contain an invoice breakdown from agency rate to net pay based on the income received in that pay period.
We provide example KID documents on our website and to help meet the ongoing obligations revised KID documents are available on our agency portal for all contractors that have a material change such as pension opt-in or a deduction from earning order applied.
We are more than happy to help support our clients in delivering their KID obligations, preparing documents and ensuring compliance within the supply chain.