The future of compliance
Tania Bowers, Legal Counsel and head of public policy at the Association of Professional Staffing Companies (APSCo) looks ahead.
Running a compliant recruitment business is key to mitigating risk but the landscape is constantly evolving, so how do you keep up with latest legislation and best practice? While there is certainly an argument that anything can happen – as the last-minute delay to the roll out of Off-Payroll demonstrated last year – most challenges and opportunities can be anticipated and here’s what you can be preparing for in 2021.
This is arguably set to be the most difficult and, indeed, immediate compliance challenge that recruiters will face. As I mentioned in the January edition of Global Recruiter, the roll out of Off-Payroll into the private sector and implementing the changes into the public sector is an issue that needs to be top of the recruitment agenda right now.
However, while the initial roll out is of most concern, the impact won’t truly be felt until after the deadline. IR35 compliance will need to form part of day-to-day activity for recruiters tapping into the contractor marketplace after 6th April. It will take time for the first case law decisions on the changes to emerge, but market behaviour will also be a good indicator as to how the recruitment arena has adjusted to this change.
Engaging compliant umbrella companies
As a consequence of the IR35 Off-Payroll roll out, we are expecting an increase in the number of people employed by umbrella companies. While this is certainly a move that is designed to ensure the flexible workforce is engaged compliantly, we have already seen a rise in fraudulent or tax evasion solutions that could expose recruiters to greater risks through no fault of their own. It is expected that BEIS will submit an Employment Bill towards the end of 2021 which will include bringing ‘outsourced employers’ such as umbrellas under the remit of the Employment Agencies and Employment Businesses Regulations 2003. This is overdue but it will have limited impact unless tax avoidance in the sector is stamped out by HMRC.
As a case in point, Mini Umbrella Company (MUC) fraud is presenting a real challenge at the moment. An MUC model involves splitting a workforce into hundreds or thousands of small limited companies to claim tax benefits and generally consists of a temporary workforce that would have historically been paid by an employment agency or traditional umbrella company. It is considered to be a fraudulent employment model that presents an organised crime threat to the UK Exchequer and can lead to a loss of employment rights for individuals engaged in this model.
HMRC has issued guidance to relevant trade bodies to help their members ensure they are using compliant umbrella services which gives clarification on red flags that staffing companies should look out for. This includes an unusual company name, unrelated business activity descriptions, a very short company lifespan, unusually high movement of staff or very attractive referral payments. If referral payments made by umbrella companies to you or your staff are accepted, they must be transparent, proportionate and taxed appropriately. Referral fees increase the risk of breaching bribery, corruption and criminal finance laws both from a personal and corporate perspective.
When a recruitment business is looking to deal with a new umbrella company or set up a Preferred Supplier List (PSL), it is vital the umbrellas are compliant and financially secure. At APSCo, all of our umbrella company Trusted Partners are required to undertake an external annual compliance audit carried out by either Professional Passport, Saffery Champness or EY or are FCSA members. Once a PSL is set up, you should regularly audit them, for example, review worker payslips and screenshots evidencing payroll taxes have been paid on time. Any administration fees charged by recruiters to their PSL should be proportionate to costs incurred, for example, to administer self-billing and manage the PSL programme.
APSCo previously welcomed the news in January of a consultation in relation to the Agency Workers Regulations 2010 (AWR) following Brexit. However, there have since been mixed messages coming from the government and BEIS and any review of employment rights has been shelved.
Access to highly skilled independent workers in a post-Brexit environment is crucial to the UK’s economy. However, the AWR rules aren’t aligned with modern business needs. They are overly-complex, making it difficult for clients to collate the level of information required to complete the assessment. This situation is further exacerbated by the nature of recruitment supply chains where the employer is often an umbrella company with no direct relationship with the client. There are multiple different definitions across employment and tax legislation around agency workers, workers, the self-employed and employed – a lack of clarity that needs to be addressed.
The long-awaited Supreme Court Uber v Aslam judgement was delivered on 19th February. The Court found that the Uber drivers were not self-employed mini-cab drivers in business on their own account but workers engaged by Uber. This decision is concerned with employment status for employment rights, such as National Minimum Wage and holiday entitlement. It doesn’t affect agency workers who are already entitled to these rights.
While the position on employment rights for workers is now clearer, in that the ruling states drivers are entitled to be paid at least the National Minimum Wage for the time they are available for work, and not just when they are driving passengers, there is still the anomaly of a different employment status for tax purposes and there is no definition of a worker status for tax. One’s status is either employed or self-employed leading to the artificial construct of ‘deemed employee’ as used in the Off Payroll legislation.
APSCo has long argued that that an overhaul of employment status would remove the current differentiation in law between employment status for rights and taxation and despite today’s judgement an overhaul of employment status remains overdue. A review would provide greater clarity regarding which category of worker is more vulnerable and, as a result, requires protection, and who is less vulnerable and doesn’t require the safeguards provided by legislation such as the AWR.
We were disappointed to hear from BEIS that the initial review had received a ‘lukewarm reception’ from businesses. The need for AWR reform and employment status review is an issue that simply won’t go away and we expect this to remain on the recruitment sector’s agenda this year.
Right to Work
With a deal now reached between the EU and UK there is some clarity in relation to international recruitment and right to work. We know that EU nationals already settled in the UK and planning to live and work in the country can do so as long as they have obtained a Settled or Pre-Settled Status visa under the EU Settlement Scheme. While the deadline to apply for this is 30th June 2021, there will be a level of nervousness from employers to bring workers on board if they haven’t seen their EU settlement status. As such we do expect to see an increase in requests for this information ahead of the summer deadline.
Beyond those workers able to apply for EU Settlement Status, the ability to tap into the flexible European workforce remains a key priority for the employment arena. However, with the need for an employer sponsor and other caveats to secure work in the UK, our attractiveness to the highly skilled contractor market will dwindle. The government must introduce a new entry route in the points-based system, which enables high-value independent self-employed professionals to come to the UK and fill skills shortage vacancies on a project-by-project basis. APSCo will continue to lobby government on this issue and we expect there to be further considerations in this regard for staffing firms towards the second half of the year.
Compliance across the supply chain
Recruitment frameworks are becoming more prescriptive about compliance and this trend will only continue in light of the above challenges. End clients are feeling the pressure from the government to know that their supply chain is compliant – and this pressure is being pushed down to partner businesses, including recruiters.
However, this does provide an opportunity for staffing companies. With employers in need of compliant partners, the ability to demonstrate that your business operates in line with the latest requirements and has the legislative knowledge either internally or through a connection with an external association such as APSCo, will be a valuable USP.
There will need to be an investment both financially and time wise from staffing companies. Consultants will require training to understand the rules they are expected to follow; there is training available that is tailored for recruiters themselves – including APSCo’s Essential Recruitment Compliance course. This is particularly pertinent with contractor recruitment and sales staff and their managers can by highly incentivised by compliance targets as part of commission and bonus schemes.
Turning compliance into a positive
Ensuring compliance within the recruitment sector is multi-faceted and time consuming, but I genuinely believe that it is a real selling point for recruiters and will only become more valuable over time. Those able to strategically sell their compliance knowledge and processes will have a competitive advantage in 2021 and beyond.