All the answers to the questions that a Procurement Manager may ask about wage portage from the business’s viewpoint.
Are there particular features about the selection and listing of umbrella companies as suppliers ?
Yes. It is unusual for an umbrella company to be listed as a supplier. It cannot be considered that there is a professional culture or an adequate reference framework in this field because wage portage is a newcomer in terms of human resources accompanied by recent regulation.
So it is essential to devise an appropriate strategy for this specific listing as a supplier, which cannot involve the transposition of an existing process in view of the legal specificities of wage portage.
Here are the essential components of a supplier listing strategy appropriate for wage portage:
- Legal impact of portage : The first element is that it is a solution with a powerful legal impact and interviewing umbrella companies and their selection must be done in the presence of a person with a strong background in labour law. The supplier listing will be facilitated by validating the legality of the practices of the potential supplier.
- Diversify your listings :
Listing a single umbrella company is not enough. It is important to have at least two because the consultant must be completely free to choose his/her umbrella company.
However, it is useful to be able to guide the consultant’s choice towards companies that provide all the guarantees sought in terms of financial soundness, application of texts governing the profession, rigorous management, track record, etc.
Forcing the consultant to join a particular company, and just one, would be against the law and could be ruled to be an infringement of the freedom of employment (which would be an offence under criminal law).
- • Analyse the training of the consultants in the candidate firm : The third component of this supplier listing strategy consists of examining the training and support resources at the disposal of the umbrella company. Indeed, this aspect is of paramount importance because the trade unions only accepted to ratify the professional agreement that covers wage portage to the extent that this new form of employment is not another step towards the exploitation and casualisation of labour. The umbrella company must have a system for personalised career management of its consultants. It must acquire the means to improve the employability of the consultants by supporting their self-reliance. For listing a supplier, it is certainly not enough to settle for taking candidate company’s statements at face value; the umbrella company must show that it has appropriate processes, negotiated and verified by actual implementation indicators.
It would be most unfortunate if the trade union representatives of a company seeking to use wage portage have to criticise the choice of a listed umbrella company which fails to meet its obligations in this field.
One cannot say, leaving aside any marketing argumentation, that umbrella companies all do the same job in the same way. Portage is an emerging market with a very low cost of entry and in an environment that has been, until now, poorly defined.
More than ever before in this field, for any company wishing to be listed as a supplier, the word portage is not enough to define the service rendered.
How to optimize the cost of portage ?
The costs of a consultant via wage portage break down into pay, allowance for searching for clients, travel expenses and management costs. The pay must include, as it would for any employee, not only the days of production, but a ratio of time between assignments, as well as time for prospecting clients and for the consultant to undergo training. All of this is usually boiled down to a price per day excluding tax.
To optimise the cost of portage, it is necessary to incorporate that the longer the assignment, and the more the daily price falls because prospecting time is reduced, the break between assignments reduces and the amortisation period for the training grows.
One can say that for a full-time equivalent in the course of a year, the cost of a consultant using wage portage is close to that of an in-house employee with the same skills because the impact of management expenses is not higher than the expenses incurred by the company to manage its own employees.
So it is more attractive to anticipate and group assignments together, or even use the same consultant for several units or departments in the same company.
Which items should be requested of an umbrella company to list it as a supplier ?
As a priority, the umbrella company must have its legal identification data: the ‘extrait K bis’ (certificate of incorporation), the legal information.
The dossier must contain precise identification of the legal entity chosen by the umbrella company to carry out the consultant’s wage portage.
Moreover, the client company must request the umbrella company to provide a certificate of professional civil liability insurance (RCP). This insurance is essential because it covers the client company in the event of any loss caused by a consultant (At ITG, for example, this insurance covers 800 000 € of losses per assignment).
The client company also has to supply documents certifying that it provides a financial guarantee, also known as ‘collateral security’. It reflects the umbrella company’s ability to pay the agreed salary every month at the request of the consultant before the umbrella company receives payment of its invoice for the consultant’s services.
If the client company has training consultants, the umbrella company must supply documents certifying that it has an approval number for those consultants carrying out training.
How to compare umbrella companies' offerings ?
The aim of a procurement department is not only to safeguard the company’s supply chain but it also wishes to increase its competitiveness by reducing the cost of its purchases.
In this context, how to interpret the attractiveness of an umbrella company’s offering?
Most importantly, don’t just settle for looking at the apparent management percentage, which may just be window-dressing, a sort of illusion that conceals the dubious practices of some companies.
Wage portage has quickly become a low-cost service, with gross margins of less than 10% of turnover. These rates are even lower if you compare them with the average for companies managing the same package of services (HR and payroll + training + legal + insurance + invoicing, collection + management and accounts) and which often do that for a cost of somewhere between 11 and 13.5% of turnover. (Source: exploitation of data from the balance sheet centre of the French Central Bank).
Three strategies are open to an umbrella company for its development :
- Reduce its obligations by only doing some of what the law requires;
- Increasing its margins by other concealed means;
- Relying on the ‘volume of consultants’ which enables them to write off more of its fixed costs and acquire very efficient systems.
ITG has chosen the latter solution, which we can illustrate in very practical terms. An unwary observer might be tempted to just accept the headline percentage declared by candidate companies. The reduction in this cost factor should, a priori, bring down the amount of fees invoiced.
In practice, the reality is quite different, because the fees invoiced depend on several cost factors, and whose management rate is far lower (in particular, see our answer to the question ‘How to optimize the cost of portage’).
Apart from the cost, how can we compare ?
Other vital parameters should be examined when deciding whether to list a supplier.
Besides the classic data on the financial soundness of the company and its offering, it is essential :
- To investigate in detail the practices relating to the consultants;
- To compare the candidate company’s practices with the legal requirements which are mostly contained in the professional agreement.
To summarise, to make your choice and list an umbrella company for the long term, three levels of investigation should be used, in order of importance :
- The compliance of the practices with the law;
- The economic soundness and references of the company;
- The economic competitiveness via the concept of overall income.
Can you ask a sole trader to accept a contract using wage portage ?
Yes, and in some cases it is even obligatory.
Below a turnover level of 70 000 € (of which 33 200 are below the VAT registration threshold), it is possible for businesses to use the services of a sole trader, but this entails two major risks. If the sole trader works regularly for a company, there is a risk that the relationship will be reclassified as an employment contract.
The courts regularly rule that contracts should be reclassified, which has two consequences :
- It brings the sole trader within the scope of labour law, and the sole trader becomes an employee of the company;
- The company runs the risk of having to pay all the social security contributions retrospectively, and even being exposed to the risks associated with dismissal.
In an assignment where the fees may exceed the threshold, the self-employed person can no longer use the regime applicable to sole traders. Then wage portage is available as the most credible alternative.
Finally, another solution is possible: combining two regimes.
The legislator has not prohibited combining work as a sole trader and working via an umbrella company. That is why you can ask a sole trader to work via an umbrella company in the context of the assignment for your company. He/she can remain a sole trader for different assignments or for lower amounts.
In the context of the assignment with your company, unlike a sole trader, wage portage will enable the consultant to pay pension contributions and obtain social insurance for unemployment and social security.
ITG already charges a high rate, I have already worked with companies that only charge 4% as their management rate ?
The buyer should not focus only on the percentages, but also consider overall income. Several factors enable companies to stand out from the rest by giving their consultants an increased overall income, either by cutting certain cost factors, or by paying additional benefits negotiated in company agreements.
That is the case of ITG which provides its consultants with :
- The possibility of declaring business development costs and having them refunded directly in the fees received. This policy is consistent with labour and tax law, but forces umbrella companies to accept the declaration of days of prospecting for clients or training as being days worked, and therefore remunerating the consultant at the rate shown in the sector agreement. (See the response to ‘How to optimize the cost of portage?’)
- Reimbursement to the consultant of the VAT on expenses: This seems to be only right, but requires the company to introduce genuine expense accounting, which represents an additional cost for the umbrella company;
- Access to a Company Savings Plan which reduces the burden of social security contributions and increases the security of the consultant’s income.
These various arrangements enable a consultant to increase his/her income by 4%, for an example where the annual fees are 60 000€.
Is wage portage consistent with a responsible/sustainable procurement policy ?
Beyond the existing legal norms, your company can adopt a sustainable purchasing policy.
This requirement policy, which is becoming more widespread in the business world, aims to ensure that supplier’s practices are consistent with the company’s sustainable development policy.
The sustainable aspect of purchases covers the environmental and societal aspects. The objective is to control the risk connected with suppliers (image risk) and can also be an opportunity to communicate with customers.
Three-quarters of large companies incorporate sustainable development criteria in the selection of their suppliers, and sustainable purchases are also becoming an important issue for SMEs (see particularly).
At ITG, there are several factors that enable us to offer responsible wage portage :
- It is the first company that signed, as long ago as 2004, a company agreement with a trade union to provide all the employment law guarantees for its consultants;
- It is the company that is in constant dialogue with social partners to promote a demanding vision of wage portage;
- It is the company whose Chair is also Deputy Chair of the PEPS (National Association of Umbrella Companies). This association promotes demanding standards for umbrella companies.