Key Information Documents

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.

Mythbusters:

"We need to issue a KID to all workers on our books"

Employment businesses must provide a KID to all workers who join their agency from 6th April 2020. Workers who already signed up and had agreed terms prior to this date, however do not need to receive a KID, although this could still be beneficial to the worker.

"Umbrella companies must provide us with a KID"

The KID requirement does mean that recruitment businesses need to work closely with umbrella partners to ensure that accurate information is given to their candidates, particularly when it comes to explaining how a particular umbrella’s model works. Despite this, it does remain the liability of the Employment Business to issue a finalised KID to the umbrella and the individual carrying out the work.

"We need to show a KID for all potential models to our workers"

Where agencies have multiple ways of paying a worker they will likely produce a template KID corresponding to each pay model. It may be helpful to show your workers each of these KIDs, but it is certainly not mandatory. Under the regulations, Employment Businesses only need to be able to show that a worker has received a KID corresponding to the final payment model choice made.

"We only need to give a KID when a worker first signs up"

A revised KID must be issued to a worker within 5 working days when any material information contained within it changes. This might be, for example, when a new deduction is made (e.g. student loan repayments), where there is a change in the umbrella/intermediary, or the payment frequency changes.

"We need to issue a KID every time an agency worker begins a new assignment"

There is no need to reissue a KID for every new assignment, so long as there are no material changes to the information recorded in the KID as a result of this change. If there are any material changes, then as above, a revised KID must be issued to a worker within 5 working days of the change.

"The KID must show the exact take home pay the worker will receive”

With many deductions being worker-dependent and likely to change throughout an assignment, the KID only needs to reflect the minimum amount expected to be achieved for a worker, not the exact take home pay each week. The KID should still include basic information about the worker’s contract, minimum pay rates and pay arrangement and all deductions made to a worker’s pay, as discussed in further detail below.

What then, should the KID include?

The regulations require the KID to include:
Basic information about the worker’s contract, minimum pay rates and pay arrangement.
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.
Any holiday entitlement and non-monetary benefits the worker can expect to receive.
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:

be straightforward to understand,
not exceed two pages of A4 in length,
be clearly labelled
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.

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Key Information Document