A

• Agency Workers Regulations (AWR)
  UK legislation that ensures agency workers receive the same basic pay and working conditions as comparable direct employees after 12 weeks in the same role. These rights include equal pay, breaks, working time, and annual leave.
• Anti-Money Laundering (AML)
  A set of legal and regulatory checks designed to prevent financial crime in contractor payments and payroll processing.
• Apprenticeship Levy
  A UK tax paid by employers with an annual payroll over £3 million. The levy funds apprenticeship training nationwide. In umbrella payroll, the levy is included within the employment costs before calculating a worker’s gross pay.
• Auto-Enrolment
  A legal requirement for employers to automatically enrol eligible workers into a qualifying workplace pension scheme and make minimum contributions. Workers may opt out, but employers must re-enrol them every three years if they are still eligible.

B

• BACS
  An electronic payment system used to process payroll transactions.
• Benchmarking
  A method used to analyse and compare a service provider’s performance and pricing against industry standards. Common in contract negotiations and periodic reviews, benchmarking allows businesses to evaluate performance, compare against industry standards, track progress, and improve recruitment efficiency. Contracts often include details on how benchmarking is conducted and who bears the cost.
• Benefits in Kind
  Non-cash benefits provided to employees, such as company cars, accommodation, or medical insurance, that may be taxable. Employers must report these to HMRC through the P11D process.

C

• Construction Industry Scheme (CIS)
  A set of HMRC rules governing how contractors and subcontractors are paid and taxed in the construction sector.
• Conduct Regulations
  The Conduct of Employment Agencies and Employment Businesses Regulations were introduced in 2004 to raise standards and protect work-seekers across the UK’s recruitment industry. They apply to both temporary and permanent roles and help ensure fair treatment.
  
  Breaching these regulations can be a criminal offence, which is why they’re taken seriously within the industry.
• Continuity of Employment
  The legal concept that employment is treated as unbroken, even across multiple assignments. This is important for accruing statutory rights such as redundancy pay, notice periods, and protection from unfair dismissal. Umbrella companies maintain continuity of employment for their workers.

D

• Defined Benefit Pension
  A pension scheme that guarantees a fixed income in retirement based on salary and length of service. Investment risk lies primarily with the employer. These schemes are now rare outside the public sector.
• Defined Contribution Pension
  A pension scheme where contributions from the worker and employer are invested. The final value depends on contributions and investment performance. This is the standard pension model under auto-enrolment.

E

• Employer's Liability Insurance
  A compulsory insurance policy that protects employers, including umbrella companies, against claims from employees who suffer illness or injury as a result of their work.
• Employer's National Insurance
  A tax that employers must pay on employees’ earnings above a certain threshold. In umbrella payroll, this cost is included within the assignment rate before the worker’s gross pay is calculated.
• End Client
  The organisation where the worker physically performs their duties.

G

• Gross Pay
  The worker’s taxable earnings before deductions such as Income Tax, National Insurance, pension contributions, and student loan repayments, but after employer costs have been accounted for in umbrella payroll.

H

• His Majesty’s Revenue and Customs (HMRC)
  The UK’s tax authority, responsible for tax, National Insurance, and compliance enforcement for recruitment and umbrella companies.
• Holiday Pay
  Statutory paid annual leave entitlements for workers, including those engaged via recruitment agencies or umbrella companies.

I

• IR35
  UK tax legislation assessing whether a contractor is genuinely self-employed or should be considered an employee for tax purposes.

J

• Joint and Several Liability (JSL)
  Rules that can make an agency (or end client) responsible for unpaid PAYE and National Insurance if an umbrella company fails to pay HMRC.

K

• Key Information Document (KID)
  A mandatory document issued to agency workers before work begins, outlining pay, deductions, employment terms, and how the worker will be paid.

L

• Liquidated Damages
  A contractual clause stipulating that if a party breaches the contract, they must pay a predetermined sum as compensation. This provision allows disputes to be resolved promptly, avoids lengthy legal proceedings, and is common in outsourcing, IT, and construction contracts. It helps manage breaches and protects commercial relationships within long-term contracts.
• Loan Scheme
  A tax avoidance arrangement where workers are paid via “loans” instead of taxable income. These schemes are targeted by HMRC, and workers can be held liable for significant tax bills. Compliant providers never use loan schemes.

M

• Managed Service Provider (MSP)
  An outsourced recruitment model where a provider manages all or part of a company’s recruitment process, often through a Master Vendor or Neutral Vendor arrangement.
• Master Service Agreement (MSA)
  A framework agreement outlining key legal terms for ongoing business between two parties. MSAs cover duration, obligations, liabilities, and govern multiple Statements of Work (SOWs). MSAs help streamline procurement, improve process consistency, and strengthen commercial relationships over time.
• Master Vendor
  A specific MSP model where a sole agency is responsible for fulfilling all of a company’s temporary workforce needs. If unable to fill certain roles, the master vendor releases those to secondary agencies. This arrangement can streamline hiring, improve quality, and bring about cost savings.

N

• National Insurance
  A statutory deduction from workers’ earnings used to fund state benefits, including the State Pension, maternity pay, and sickness benefits.
• National Minimum Wage/National Living Wage (NMW/NLW)
  The legal minimum hourly rates that employers must pay workers in the UK. Rates vary by age and apprenticeship status. Umbrella companies must ensure all workers receive at least the correct minimum rate after mandatory deductions.
• Net Pay
  The amount paid to the worker after deductions such as tax, National Insurance, pension contributions, student loans, and any agreed adjustments.
• Neutral Vendor
  An MSP model where the provider manages recruitment processes but does not supply candidates directly. Instead, the neutral vendor coordinates with multiple approved agencies, offering wide access to talent and impartial candidate selection. There is no conflict of interest as the neutral vendor does not compete directly for placements.

O

• Overarching Contract
  An umbrella employment contract spanning multiple assignments.

P

• Pay As You Earn (PAYE)
  The UK system by which Income Tax and National Insurance are deducted from employees’ salaries by their employer, including umbrella companies.
• Payroll
  The process of calculating and issuing wages.
• Pension
  A long-term savings plan into which workers and employers contribute. Under auto-enrolment, qualifying workers must be automatically enrolled unless they choose to opt out.
• Personal Allowance
  The annual amount someone can earn before paying Income Tax.
• Personal Service Company (PSC)
  A limited company, usually set up and operated by an individual contractor, for the purpose of providing their services in a tax-efficient way.
• Preferred Supplier List
  An approved list of providers based on compliance standards, service quality, and commercial terms.
• Professional Indemnity Insurance
  Insurance covering claims of professional negligence.
• Public Liability Insurance
  Insurance covering claims for injury or property damage caused to third parties during work.

R

• Real-Time Information (RTI)
  A payroll reporting system requiring employers to submit employee pay data to HMRC each time employees are paid.
• Recruitment Process Outsourcing (RPO)
  Refers to transferring all or part of a company’s recruitment process to an external provider. RPOs act as extensions of the HR team and provide talent engagement, compliance, risk management, and supply chain solutions. RPOs directly handle and deliver all aspects of the hiring process.

R

• Real-Time Information (RTI)
  A payroll reporting system requiring employers to submit employee pay data to HMRC each time employees are paid.
• Recruitment Process Outsourcing (RPO)
  Refers to transferring all or part of a company’s recruitment process to an external provider. RPOs act as extensions of the HR team and provide talent engagement, compliance, risk management, and supply chain solutions. RPOs directly handle and deliver all aspects of the hiring process.

S

• Salary Sacrifice
  A tax-efficient agreement where an employee voluntarily reduces their salary in exchange for non-cash benefits, commonly pension contributions. The arrangement lowers taxable earnings and may reduce National Insurance liabilities.
• Status Determination Statement (SDS)
  A declaration provided by an end-client, under IR35, assessing whether a contractor is employed or self-employed for UK tax purposes.
• Service Credits
  A provision in outsourcing contracts that reduces payments to the service provider if agreed service levels (SLAs) are not met. Service credits act as motivation for meeting targets and are usually capped as the customer’s sole remedy for performance failures. The SLAs triggering service credits must be reasonable and achievable.
• Service Level Agreement (SLA)
  A core part of outsourcing contracts, SLAs specify measurable performance targets (e.g., time to hire, candidate quality, retention, etc.). SLAs distinguish between minor and major failures. Persistent breaches can trigger remedies or contract termination, making clarity and achievability essential for these terms.
• Statement of Work (SOW)
  A project-based service agreement. Instead of providing staff, the agency or consultancy delivers an agreed service for a fixed fee, with payment linked to the achievement of deliverables. SOWs increase price certainty for clients and shift most risk to the provider. SOW arrangements can fall outside the IR35 rules when structured as genuine outsourced service engagements.
• Statutory Employment Rights
  Legal rights for employees, including paid holiday, sick pay, maternity/paternity leave, redundancy rights, and protection from unfair dismissal. Umbrella employees receive the full range of statutory rights.
• Step-in Rights
  A contractual provision allowing the client to temporarily take over services if the provider fails to deliver as agreed. Step-in is usually triggered by substantial or ongoing breaches in service and suspends the supplier’s duties until the situation is resolved. Step-in rights are particularly serious and should be carefully defined in contracts.
• Supervision, Direction, and Control (SDC)
  A test measuring how much control a client has over a worker.

T

• Tax Code
  A code determining how much tax-free income a worker receives.
• Temporary Fixed Contract Assignments
  Short-term roles with a defined end date or project scope. Workers may be paid via umbrella, agency PAYE, CIS (if eligible), or a PSC, depending on the engagement and compliance requirements.
• Transfer of Undertakings Protection of Employment (TUPE)
  UK regulations protecting employees’ rights when a business or service transfers to a new provider. TUPE ensures existing employees transfer under the same terms and conditions, and any associated liabilities transfer to the new employer. These rules automatically apply in situations involving business sales or service provision changes.

U

• Umbrella Company
  An intermediary that employs contractors on temporary assignments (typically through a recruitment agency), handling payroll, tax, and statutory employment rights for those contractors.
• Umbrella Company Margin
  The weekly or monthly fee charged by an umbrella company.

W

• Working Time Regulations
  Legislation regulating maximum weekly working hours, rest breaks, night work, and annual leave entitlements. Certain sectors and roles have exemptions or modified rules.

Disclaimer: This glossary is for general guidance only and does not constitute legal or tax advice.