The Challenge of work

SUPPLIER'S VIEW - We asked industry suppliers what they think is the biggest compliance challenge for recruiters?

Shaun Critchley – Managing Director, ADVANCE

For contract and temp recruitment businesses that place PSC/limited company contractors in the public sector, April’s IR35 reforms are obviously a major headache.

The additional risk, admin and complexity mean many agencies will be reluctant to engage contractors on a PSC basis and will be looking for alternatives, such as umbrella employment. Indeed, we have seen a significant increase in demand for our umbrella with expenses solution as the practical effects of the new off-payroll rules have become clear.

A year on from the travel and subsistence and salary sacrifice reforms affecting umbrella employees, there is still plenty of confusion out there regarding ‘supervision, direction or control’ (SDC) and what constitutes a compliant umbrella solution in the post-April 2016 world. Meanwhile, identifying a self-employment solution that minimises risk and gives a satisfactory degree of comfort is still a challenge for many agencies.

On the whole, though, I’d say the biggest challenge is still choosing umbrella, accountancy and contracting providers that operate in a compliant and ethical manner.

With end clients taking a growing interest in ensuring compliance throughout contingent labour supply chains, agencies are under pressure to demonstrate evidence of due diligence – hence the increasing focus on rigorous accreditations such as full FCSA membership.

Barry Roback – Director, Anderson Group

There was a time when recruitment was simply matching demand for talent with available supply. But times have changed and compliance now dominates just about every stage within the recruitment process – both within the permanent and temporary markets. 

From ethical advertising, right through the supply chain (‘know your client’, the type of engagement and method of payment), regulations dictate exactly what we can – and more importantly, what we cannot do. Many of today’s regulations can be traced back to EU dictates but for those Brexiteers amongst us, I regret to say that little is expected to change after the UK has left the EU. The rest are largely tax related as successive governments repeatedly fail to tackle through legislation the thorny issue of employment v self-employment.

So not only must recruiters be good at doing what they do best, i.e. recruiting; but they must also become part time employment lawyers and tax collectors/inspectors. With the burden of compliance weighing heavy on their shoulders (both from legislated liability and through contractual indemnities), few can now afford to get it wrong. Of course, the very large agencies can weather this storm, albeit through an ever-increasing compliance cost. But for the medium and smaller agencies wishing to operate compliantly, the only sensible solution available is through outsourcing.

Damian Broughton – Executive Chairman, Danbro

For many years HMRC have used the recruitment sector as their ‘enforcer’ for new legislation, meaning recruiters must be aware of a plethora of information, including IR35, MSC, Offshore Employment Intermediaries, Onshore Employment Intermediaries: False Self-employment, and Agency Workers Regulations…to name a few.

New legislation is proving to be the biggest compliance challenge recruitment companies face. More recently has been the Off Payroll changes to all PSC workers in the Public Sector.

These changes become law on 6th April 2017, although we’re yet to see the final draft. HMRC are encouraging use of their online status tool, saying they’ll stand by the results it provides. However they will ignore results where they believe the information was input incorrectly. The public body will decide if a contractor is caught by IR35 – but it is the recruitment company who will feel the pain if the decision is proved to be wrong, as they are the ones who will suffer tax charges and penalties. This is wholly inequitable, meaning many are deciding against the risk and recommending all their PSC clients transfer over to an Umbrella solution, thus giving a better return for the contractor, with no risk for the agency.

Michael Tobin – Marketing Manager, Giant

NB: This statement was written before the final legislation announcement.

It seems that every year, new legislation is released affecting agencies. April is fast approaching and the legislation changes regarding off-payroll working in the public sector will be introduced on 6th April 2017.

Challenges facing agencies from April:

• Gathering IR35 decisions from the public body – will they understand?

• 6 April 2017 does not provide sufficient time for agencies and public sector bodies to introduce changes to deal with the new rules. The HMRC guidance notes are not abundantly clear – open to interpretation.

• Assessing worker options – PAYE, umbrella, keeping their PSC and operating inside IR35.

• Terminating and issuing new contracts and the admin involved.

• Consideration of a party sitting in the contract chain – removing risk from the agency.

• Some feel the public body is responsible – the public body offer their view, the agency is ultimately responsible and liable.

The final legislation is expected in March. With the expected implementation edging closer, it is important that all parties understand that changes will be made to their current arrangements.

Although facing the prospect of new compliance challenges each year, recruitment agencies have dealt with the changes appropriately. Once things settle down, the new processes become the norm.

Martin Hall – Head of Compliance and Risk, ICS

There is not one compliance challenge which rises above all others for recruiters. Rather, keeping up with the vastly changed (and still changing) compliance landscape in the temporary worker market is a huge challenge in itself. In recent years we have seen the introduction of legislation which places a liability on recruiters under certain conditions in the form of the Agency Worker Regulations, the Onshore and Offshore Intermediaries legislation and, soon, the public sector reforms to IR35. This means recruiters now have to be absolutely confident in the modes of payment of their candidates.

What is potentially more challenging for recruiters than complying with the legislation is ensuring that all other parties in the supply chain are compliant too. The Managed Service Company legislation is one example of how a liability might fall at the feet of a recruiter from the actions of a service provider to its candidates. Recruiters need to know how their candidates’ payment solutions work and how the contractual chain is structured.

The list of other considerations for recruiters on tax legislation goes on. It is complex and intertwining; recruiters need to understand it or work with a transparent service provider which does.

Sarah Johnston – IQX Limited

The biggest compliance challenge facing recruiters now is The General Data Protection Regulation (GDPR) due to be introduced in early 2018. The GDPR, approved in April 2016 following a lengthy four-year discussion is set to replace the Data Protection Act 1998.

The goal of bringing GDPR into effect is to ensure the legal framework for data protection is as strong and consolidated as possible, especially as there is some uncertainty as to whether Brexit will remove the need for such strict compliance regulations in the UK.

So, what exactly is GDPR?

GDPR enhances the data protection rights of EU citizens wherever their data is processed, saved and used. It provides a clear, uncompromised view meaning a candidate can access and delete their information. The primary focus of this law is the safety and security of the workforce. It will require recruitment companies to take proactive steps to improve security of data and report data breaches within 72 hours.  Customer consent must be officially obtained, rather than implied consent, again to protect privacy for your clients and candidates. Going forward, agencies should have solid strategies in place to manage GDPR as regulators are expected to conduct thorough checks.

Sam Radion – Sales Director, Merit Software

Most definitely the pace of change is the biggest ongoing challenge. We have seen over the past few years a shorter and shorter period between the announcement of a compliance change and the implementation of
that change.

In the world of software this is exceptionally difficult. Getting a quality product developed, tested and deployed to hundreds of customers in a very short timescale is a significant challenge for both suppliers and recruiters. In many cases we have seen situations where our software solution is ready but the customer has not yet even heard of the changes or thought about how it will impact their business. We recently surveyed our customer base about the recent off-payroll legislation, and a worrying minority stated that they think they will be affected by the change, but will wait and see what happens in April. Choosing a supplier who is geared up to cope with these demands is vital, but recruiters need to maintain this fast pace themselves in the current climate too.

Tracey Williams – Managing Director, TJW Contract Solutions

Anyone who held their breath during the Chancellor’s budget statement, prepared for a premonition of doom, was probably pleasantly surprised. However, in reality there is a huge amount of legislative change and compliance challenge that needs to be addressed in 2017.

Pressure on the supply chain has never been greater. Fallout from the aftermath of the April 2016 amended expense legislation continues. Continuing ability to pay expenses applies only in very specific circumstances and requires detailed understanding of the legislation. Beware suppliers whose promises seem too good to be true. IR35 changes in April 2017 will see the party responsible for payments to personal service company contractors (PSCs) within the public sector liable for defining their tax treatment. The risks associated with this, together with the associated obligation on the end hirer to provide relevant information, seem likely to lead to a culture of false employment which will undermine the use of PSCs. The alternative of contracting via an umbrella company and the associated acquisition of full employment rights will be an appealing alternative. 

Add to this Gender Pay Gap Reporting, Apprenticeship Levy and Duty to Report on Payment Practices and 2017 looks anything but relaxing!