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UK – Staffing firms culling rogue suppliers following self-employment legislation

01 October 2014

Legislation around false self-employment has prompted a cull of so-called “cowboy” supply chain partners by staffing firms, according to research from Optionis, the parent company of outsourced employment provider Parasol and contractor accountant ClearSky.  

All 16 senior recruitment industry executives who took part in a focus group, told Optionis that they had introduced additional checks and stopped working with suppliers – such as umbrella companies – who fail to meet compliance standards in light of the new legislation.

Similarly, every respondent had sought some form of professional guidance regarding their agency’s obligations under the onshore employment intermediaries’ legislation. The vast majority had either implemented a preferred supplier list (PSL) for the first time, or strengthened an existing one.

All but two participants believed they had a solid grasp of the new measures, having conducted extensive research into them.

However, less than half of respondents (seven out of 16) had discussed the implications of the legislation with their clients, while only a quarter (four out of 16) had gone so far as to broach the subject of liability and indemnities. 

The onshore rules, which came into effect in April, require staffing firms to prove that any self-employed workers they place are genuinely independent. Failure to do so could result in the agency and even its directors being hit with a bill for unpaid PAYE tax and National Insurance contributions.

From August 2015, recruitment businesses that have direct contractual relationships with end clients will need to file quarterly reports containing “details of all workers and their payments where PAYE wasn’t operated.”

Late, incomplete or incorrect reports could result in a financial penalty.

One agency executive who took part in the focus group study called on the staffing sector to unite and demand more clarity from HMRC on the reporting requirements: “The whole of our industry needs to push HMRC to get the reporting requirements firmed up and formalised at least three months before the start of the reporting year, to enable systems development and adequate testing to take place.”

Another senior industry figure wrote: “Applying the required governance to ensure compliance throughout our workforce is very time consuming. There is no defined criteria from HMRC, so we don't know if the levels of compliance we are applying are correct.”

Optionis said its research showed that agencies are taking a pro-active approach to compliance in light of the legislation.

Jeff Blakemore, Sales Director for Optionis, commented: “It’s clear that the vast majority of recruitment industry leaders want to do the right thing, and are taking steps to ensure their organisation complies with the new rules.”

“The main obstacle seems to be a lack of clarity from the taxman. The additional guidance published earlier this month was a start, but questions still remain – particularly around reporting requirements and the interpretation of supervision, direction or control (SDC).”  

“Overall, however, it seems the legislation is helping to raise standards across the contingent worker recruitment supply chain. This can only be a good thing for the industry,” Mr Blakemore concluded.

Fiona Coombe, Director of Legal and Regulatory Research at Staffing Industry Analysts concurred: “The legislation should not be an obstacle to placing genuinely self-employed contractors but it does require a clear understanding of the law and how it may be interpreted. So it is inevitable that umbrella suppliers who are unable to satisfy their recruitment industry clients that they are complying with the rules will find themselves falling out of favour. Hopefully this will serve to raise standards in a sector of the staffing industry where there is minimal regulation.”