Regulation is typically not a favourite word for business. But taking a step back, the real bug bear for compliant businesses in the recruitment industry is deliberate non-compliance with regulation by others. Compliance refers to companies and organisations meeting their legal obligations – often to protect the health, safety and welfare of others. Deliberate non-compliance by unscrupulous businesses willing to cut corners creates an un-level playing field for businesses wanting to do the right thing. Businesses, workers and government therefore have a joint interest in a robust compliance regime which both helps businesses be compliant and also acts as an effective deterrent. Being a good, compliant business takes resources – both time and effort, particularly with a changing regulatory framework, and non-compliance is not always deliberate. But it is in everyone’s interest to increase compliance. Having a compliant recruitment industry helps increase trust in businesses along the supply chain and raises the reputation of the industry, which benefits everyone. There are different ingredients that together can help ensure we have the perfect compliance cocktail for the industry:
• Government – the enforcement mechanisms and strategy, but also the development of policy, can lead to incentivising either compliance or non-compliance with regulations;
• Businesses themselves;
• Trade associations such as the Recruitment & Employment Confederation, which drive adherence to the rules. With legislative changes underway following the government’s Good Work Plan, IR35 tax changes imminent, and immigration changes on the horizon, there has never been a more important time for the recruitment industry to be compliant.
Government enforcement – a balanced approach
Firstly, government and regulators have a role to play. Fundamentally this is about the government’s enforcement strategy and focus. It is in the interests of compliant businesses for government to have a robust and adequately resourced enforcement system. However, there needs to be a way for government to distinguish between flagrant and damaging non-compliance and accidental non-compliance across all three enforcement bodies – HMRC, NMW unit and EAS. With the creation of a Single Enforcement Body over the next few years, there is an opportunity to really get this balance right. We need regulators to be visible in the labour market and engage with businesses and trade associations to ensure trends and emerging risks are identified.
Government policy design
There are areas of policy that government can deliver on to encourage compliance by the recruitment industry. For instance, we have been calling for some time for the government to define and regulate umbrella companies. We’re pleased that this is planned as part of the government’s upcoming Employment Bill. However, it would have been better to regulate them ahead of IR35 changes. We know from our members’ experience in the public sector that IR35 changes led to a proliferation of uncompliant umbrella companies. Another area of concern is on immigration, where proposed rules without a temporary route risk driving unscrupulous employers towards illegal workers. We are calling for the government to ensure a temporary route with permits held by workers to prevent this happening. Finally, regulations need to keep up with the changing world of recruitment to protect workers and ensure compliance. We want the government to work with the recruitment industry to find a solution to the rising number of apps and digital platforms that meet the definition of an employment business or employment agency but don’t recognise themselves as such. That makes them hard to govern as a result, which can expose workers to exploitation and allow them to undercut compliant businesses. Sophie Wingfield, head of policy and public affairs, REC on why compliance has never been more important.
Businesses ensuring their own compliance
Every business has a role to play. Compliance makes good business sense, rather than just being the right thing to do. With the increasing focus on complex supply chain liability, we are seeing firms across the supply chain seeking assurances that each of the companies they are associated with are playing by the rules. As well as stronger regulation in this area, this is also driven by the negative reputational impact of non-compliance woven along the supply chain. Whilst there is a temptation to focus on cost from some organisations using recruiters, the REC has long been campaigning for the need for cost-control priorities to be balanced with a focus on compliance and sustainability of supply, in both the public and private sectors.
The role of the REC and other trade associations
With an estimated 30,000 strong recruitment industry worth over £38.9 billion to the UK economy, the EAS annual budget of £0.725 million is not going to stretch to inspections of the whole industry. As such, the government must ensure there is a climate of cooperation which encourages the so-called ‘self-regulation’ of the industry. Trade associations play their part in driving this compliance. As a trade association we want to ensure our members know how to meet their legal obligations, and go beyond this to provide both workers and clients with the best service possible. To help our members do this we have a dedicated legal helpline, solicitors, researchers and policy professionals who can help guide members through evolving labour market regulations and share best practice. Alongside this educational approach we have robust compliance procedures to ensure our members operate to a high standard. This includes a compliance test for members to complete on entry into membership (and then every two years). The REC’s Code of Professional Practice ensures that all members conduct their businesses ethically, to the highest standards and promote good practice. To enforce this we have a Complaints and Disciplinary Procedure which allows the REC to investigate complaints made against members by workers and clients, relating to breaches of the Code. Our investigations process can result in cases being referred to our industry-led Professional Standards Committee (PSC), of which both the TUC and CBI are members. The committee has the power to issue sanctions, sometimes resulting in the expulsion of our members. It is this process of industry self-regulation that helps ensure clients trust our members.
The work of compliance is never done
With several recruitment industry legislative changes coming into effect this year following the first tranche of the government’s Good Work Plan: • a Key Information Document for all workers engaging with an Employment Business; • the end of Pay Between Assignment clauses; • and written statements from day one for all workers; alongside regulatory and enforcement changes on the horizon: • a Single Enforcement Body; • and other Good Work Plan legislation such as the right to request a more stable and predictable contract. The recruitment industry will have to keep updating their procedures. In conclusion, as with any business, reputation is everything. At a time when the Trust Barometer annual survey by Edelman shows that only 47 per cent of the public believe that business can be trusted, all businesses have a hill to climb. It is in the interests of the industry, government and organisations like the REC to create the landscape for socially responsible industry to thrive.
