Schools and academies: Paying suppliers who are self-employed or contingent workers
Last updated 9 April 2020
In one of my previous articles, I spoke about the payment of suppliers being a potential operational challenge and also an opportunity. But of course, there are many different types of supplier and it is important that schools and academies play their part in helping to ensure the economy “ticks along” during lockdown.
But so often some guidance has not been clear when released from the Government and this had led to many questions.
With regards to self-employed suppliers, you should read the Procurement Public Notice which has been released.
You will then need to take some practical steps and assess whether the self-employed supplier is at risk and therefore in a position to resume normal contract delivery once the outbreak is over.
As a contracting authority you should:
- Urgently review their contract portfolio and inform suppliers who they believe are at risk that they will continue to be paid as normal (even if service delivery is disrupted or temporarily suspended) until at least the end of June.
- Put in place the most appropriate payment measures to support supplier cash flow; this might include a range of approaches such as forward ordering, payment in advance/prepayment, interim payments and payment on order (not receipt).
- If the contract involves payment by results then payment should be on the basis of previous invoices, for example the average monthly payment over the previous three months.
- To qualify, suppliers should agree to act on an open book basis and make cost data available to the contracting authority during this period. They should continue to pay employees and flow down funding to their subcontractors.
- Ensure invoices submitted by suppliers are paid immediately on receipt (reconciliation can take place in slower time) in order to maintain cash flow in the supply chain and protect jobs.
Key issues for any school or academy implementing this process include:
- Process for considering which suppliers are at risk
- Process for determining the level of payment (i.e. advance payment) to be made
- How this is implemented with your finance policy
The last bullet point is particularly relevant for academies.
Managing public money prohibits payment in advance of need, and it is considered novel and contentious. Consent has temporarily been granted until the end of June 2020, but only where the Accounting Officer is satisfied regarding the value for money case by securing future delivery. Also, this consent is capped at 25% of the value of the contract. You must document this to Accounting Officer.
The key to the above process is open dialogue, especially when considering if they are at risk or not. You should not hesitate to ask the supplier to provide management accounts or other records which might demonstrate this. The fact that suppliers are willing to engage on this basis and be transparent can be taken as a good indicator that they are indeed in need.
The Trust is under an instruction to assess the risk of suppliers going bust so as not to pay in advance for a service that won’t be able to be completed. It is difficult to advise scientifically on this in the current climate but look out for red flags and record the decision-making process.
The Public Notice also talks about not paying the profit element of a contract that is not fulfilled. It could be suggested that the agency would likely be under no obligation to pay a subcontractor where the work wasn’t fulfilled and therefore, they shouldn’t be asking the school/academy to make the usual payment as it would just reflect profit for the agency.
So, the questions you need to ask yourself and the supplier are:
- Do they plan to invoice you for sessions not delivered?
- Is the supplier at risk of going bust in the current situation?
- Is there a profit element included in their current pay?
If there is a profit element, then you should not be paying this if you decide to make advance payments. Out of the rate they charge, you need to consider what overheads they have – this could well be minimal – so the rate is likely to be predominantly profit.
Finally, consider the fact that the self-employed supplier can claim self-employment allowance from the government. Therefore the school/academy could be at risk of also providing income and hence the supplier would receive more income. This would go against the spirit of the system and if identified publicly would paint the school/academy in a bad light reputationally.
Thankfully, further guidance on payment to these suppliers has now been released. This includes all categories of contingent workers such as: PAYE; Umbrella; and Personal Services Company.
Essentially the guidance states that if Contingent Workers are unable to work due to COVID-19, for example, due to sickness, self-isolation, or the temporary closure of offices, they should be paid at 80% of their pay rate up to a maximum of £2,500 per month. This is allowed until 30 June 2020 (currently).
As ever, with both scenarios we highly recommend discussing all potential plans with your trusted advisers and to document your decisions process in full. Do not rush these decisions, slow down and take your time.
If you would like to discuss any of the topics mentioned in this article, contact Phil Reynolds, Audit and Assurance, Senior Manager and Specialist in Academies and Education.
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