Managing a large temporary workforce comes with significant compliance responsibilities. Procurement teams often work with multiple agencies, each with different reporting, documentation, and liability obligations. Overlooking these areas in your Preferred Supplier List (PSL) contracts can lead to fines starting at £10,000, along with reputational damage.
Understanding the 𝐢𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐜𝐞 𝐨𝐟 𝐜𝐨𝐦𝐩𝐥𝐢𝐚𝐧𝐜𝐞 𝐚𝐮𝐝𝐢𝐭𝐬 is critical. Regular audits help identify risks before they become costly problems and ensure your organisation maintains control over its temporary workforce operations.
This blog highlights three red flags to check in your PSL contracts today.
Compliance audits are far more than a formality. They are a strategic safeguard for organisations that rely on temporary labour.
Audits help procurement teams:
Identify gaps in PSL contracts and supplier obligations
Reduce financial and legal risk
Maintain transparency across temporary labour operations
Ensure alignment with employment legislation and internal policies
For companies managing multiple agency suppliers, audits provide early warning signals that prevent small issues from escalating into fines or disputes.
Red Flag 1: Ambiguous Compliance Responsibilities
One of the most common issues in PSL contracts is unclear assignment of compliance responsibilities between your organisation and the agency.
When auditing, consider:
Who is responsible for verifying right-to-work documentation?
Which party ensures health and safety compliance for temporary workers?
Are tax, payroll, and employment obligations clearly assigned?
Vague responsibilities create a risk that can result in fines if regulators determine your organisation was liable for a compliance failure. Ensuring clarity is essential for mitigating exposure.
Red Flag 2: Inconsistent Reporting and Documentation Requirements
Accurate and timely data is the backbone of compliance in temporary labour management. PSL contracts often fail to standardise reporting requirements across multiple agencies, creating gaps and inconsistencies.
During your audit, look for:
Defined submission requirements for timesheets, tax forms, and right-to-work documentation
Agreed-upon reporting formats and schedules
Penalties for missing or delayed documentation
Inconsistent reporting can conceal issues until it is too late, making regular audits critical to uncover gaps and enforce accountability.
Red Flag 3: Unclear Penalties and Liability Clauses
Another frequent compliance issue is unclear financial liability in PSL contracts. Organisations using multiple agencies may unknowingly assume responsibility for fines incurred due to supplier non-compliance.
Check for:
Explicit penalties for non-compliance
Clear definitions of who is liable for fines or legal claims
Conditions under which your organisation, not the agency, is responsible
Clarifying liability ensures your organisation is not exposed to unexpected financial risk and helps procurement negotiate fairer terms.
How Compliance Audits Protect Your Organisation
Conducting a PSL contract audit offers tangible benefits for procurement teams and HR departments:
Early risk detection: Identify compliance gaps before regulators do
Improved supplier management: Standardise expectations and performance across agencies
Reduced financial exposure: Avoid costly fines and legal disputes
Data-driven decisions: Optimise supplier selection and workforce strategy
Regular audits instil transparency and accountability, helping procurement teams manage temporary labour efficiently and securely.
Best Practices for Conducting a PSL Compliance Audit
Document Review: Collect all PSL contracts and associated agreements from each agency.
Define Audit Criteria: Focus on compliance responsibilities, reporting standards, and liability clauses.
Identify Gaps: Compare contract obligations with internal policies and regulatory requirements.
Engage Suppliers: Discuss findings with agencies to clarify responsibilities and resolve ambiguities.
Implement Corrective Actions: Update contracts or processes to close gaps and standardise practices.
A systematic audit ensures consistency across your supplier network and protects your organisation from fines and compliance issues.
Why Companies Using Temporary Labour Should Act Now
Organisations with large temporary workforces often underestimate the risk embedded in multiple PSL agreements. Failing to audit contracts can result in fines starting at £10,000, escalating if issues persist.
The importance of compliance audits goes beyond regulatory adherence. They allow procurement teams to streamline processes, enforce accountability across their supplier network, and maintain visibility into workforce operations. Acting proactively can prevent costly surprises and operational disruptions.
Conclusion
Temporary labour management is complex, and PSL contracts are a critical component of compliance risk. Ambiguous responsibilities, inconsistent reporting, and unclear liability clauses are three red flags that can result in fines and operational risk.
Conducting regular compliance audits equips procurement and HR teams to identify gaps, enforce accountability, and reduce financial and legal exposure. For companies relying on multiple agencies, investing in PSL audits is essential to protect your workforce operations and maintain compliance.