The Compliant Way Ahead

Simon Kent discusses the immediate compliance challenges for the sector

The course of IR35 legislation has preoccupied the recruitment industry for some time now, and despite the protests, consultations, surveys and previous experience the government has remained resolute in introducing the change to the private sector’s use of contractors. With blanket assessments being made and major corporations deciding to stop employing contractors the stage seems set for a huge negative impact on the UK’s a flexible workforce at a time when industry could do without such a hit. The prospect of a reduced migrant workforce, the challenge of Brexit and now the ongoing issue of coronavirus would suggest UK plc needs all the help and support it can get for accessing, engaging and using talent and skills, yet IR35 means doing this will be more complicated and less attractive. In a survey undertaken by ContractorCalculator among more than 12,000 contractors 52 per cent reported firms were losing at least 50 per cent of their contracting workforce. “Contractors are abandoning their clients and UK plc is set to suffer irreparable damage,” concluded the survey. The supplier also highlighted cases where firms were already unfairly classifying self-employed workers as ‘deemed employees’ meaning they would be taxed as employees, but receive none of the rights of employment. “A much simpler off-payroll tax of circa five per cent, without the need for a complex employment status test, is the obvious choice, but this suggestion has fallen on deaf ears once again,” said ContractorCalculator. “Havoc will ensue. Mr Johnson and Mr Sunak will go down as the pair who introduced the ‘no rights employment’ model and damaged the flexible workforce.” There is perhaps one small positive on the horizon as the new IR35 regulations bite into the private sector and that is that the recruitment industry has seen it before in the public sector. At least this experience should help it deal with the consequences, the concerns of employers and contractors alike. At the same time it could simply lead to more confusion, less reliance on a previously available workforce and ultimately a push towards more ‘creative’ employment and pay solutions, bringing with them additional dangers of tax-avoidance challenges.

More change Unfortunately for employers and the recruitment industry, the immense impact of IR35 has obscured other important compliance issues for the sector. One deceptively simple change which is also coming this month is a change in the National Minimum Wage and the National Living Wage. The increased rates were recommended by the Low Pay Commission and will see the National Living Wage (for over 25 year olds) increasing by 6.2 per cent from £8.21 to £8.72. Meanwhile, the National Minimum Wage will rise across all age groups, including: • A 6.5 per cent increase from £7.70 to £8.20 for 21-24 year olds • A 4.9 per cent increase from £6.15 to £6.45 for 18-20 year olds • A 4.6 per cent increase from £4.35 to £4.55 for Under 18s • A 6.4 per cent increase from £3.90 to £4.15 for Apprentices According to the government, the impact will be a £930 increase in annual earnings when gross annual earnings of a person working 35 hours per week on the new NLW rate from April (£8.72) is compared to the 2018/19 NLW rate (£8.21). It will also deliver a £3,680 increase in annual earnings when the gross annual earnings of a person working 35 hours per week on the new NLW rate from April (£8.72) is compared to the 2015/16 minimum wage rate (£6.70).

No more derogation

Also on recruiter’s radar should be the abolition of ‘Swedish derogation’ from the Agency Worker Regulations 2010. This move is part of the government’s Good Work Plan and could impact on businesses who use a high volume of blue collar agency workers. Squire Patton Boggs have quoted government’s figures stating that 8-10 per cent of UK agency workers are on these kind of contracts, which could mean as many as 130,000 people are affected. Swedish derogation offered a “pay between assignments” contract for agency workers requiring workers with a temporary worker agency (TWA) to give up the right to pay parity with comparable permanent staff in return for a guarantee to receive a certain amount of pay when they have gaps between assignments. The arrangement’s end came about as a result of the Taylor Review which determined that getting rid of this arrangement would encourage more employers to take on permanent employees, thereby providing a greater level of certainty and security to those individuals.

KID you

Finally, but perhaps most significantly, is the introduction of key information documents. From 6th April, the government have stipulated that all agency workers must be given a key information document before agreeing terms with an employment business. The document is intended to give workers a clear indication of the work they are to do and the reward they will receive as a result. In practice the document has to be given to workers before they start work and should be one of the first things they receive from an agency when they are expecting work. The government’s information on this says the regulation does not apply to agency workers with existing terms with an employment business, but workers will be entitled to a key information document when they sign up with a new employment business. The document, says the government’s guidance, “is intended to give agency workers more immediate access to key pay related information before agreeing terms with an employment business and a clear idea of how any fees and deductions will affect their pay.” The emphasis here is on ‘key information’ – the document does not need to be prescriptive or go into full details but there should be an overview of how their prospective terms of engagement affect their pay over the course of an assignment or other period of time. “The figures in the key information document will not need to be completely reflective of what an agency worker may actually go on to earn in an assignment, but rather will demonstrate how a proposed rate of pay is affected by fees and deductions made throughout the supply chain,” says the guidance. In this context, it is not expected that the documents will be continuously replaced or updated. The general terms and increased transparency afforded by the documents could remain relevant and accurate for workers going in and out of different working arrangements. The government highlights times when changes may, however, need to be made: “This might for example be when a new deduction is made, such as student loan repayments or contributions to a private healthcare scheme, or when a worker’s right to equal treatment under the Agency Workers Regulations 2010 takes effect.” Government advice has provided separate examples of KIDs for agency workers operating through PAYE, umbrella and PSCs and some suppliers have already produced solutions for agencies where key fields can be populated easily on a case by case basis. While this is undoubted another layer of administration work for recruitment agencies, handled correctly it should fit into the administration work around engaging and placing temporary talent. There will certainly be some debate over definitions and the level of information required in these documents. Indeed with compliance in general, and certainly at this point in time, there will be an element of implementation, assess the impact and then make changes as appropriate. HMRC’s record seems to have been to plug one gap, see where the next problem arises and try to plug that gap – and as a result while recruiters will have to work hard to meet the current round of changes, this will certainly not be the end.

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