National news outlets actively seeking stories of non-compliance within temporary recruitment

A stream of stories of non-compliance within the temporary recruitment sector have broken over the last number of weeks. National news groups have picked up on and are actively seeking new stories where they are naming and shaming intermediaries and associated Recruiters.

The reputational damage for those cited will I’m sure mean they take a large hit initially and some may not recover at all.

Recruitment has always suffered from a misaligned reputation. Many of you will know from my Meet the CEO profiles in Recruitment International, I am a passionate ambassador for good and aspiration work achieved in our sector.

It concerns me that reputational damage and brand equity of so many organisations and the sector, as a whole, is under so much threat.

Hardly a day passes without another article on non-compliant activity breaks, this weekend, The Sunday Times ran the headline ‘NHS hands over millions to tax avoidance firms’.

Last week, an article about staff from a well-known medical agency using bogus workers to defraud the NHS, which unfortunately I might add, didn’t overly surprise me in the current climate.

A month ago, the reports focused on agency nurses facing the large tax bills and potential fines agency from HMRC for historical unpaid tax. With many of these workers facing bankruptcy, MP Stephen Lloyd raised the issue in parliament stating the following “Is it unfair that HMRC is pursuing people who acted in good faith rather than the client organisations, agencies or umbrella companies that ran the schemes, all of whom benefited significantly [?]”.

Despite this high profile pressure, HMRC stood fast in their pursuit of the unpaid taxes and the press articles covering the story featured not only the non-compliant provider but the agencies using the provider to payroll their contractors.

As HMRC continue to identify individuals who have engaged, or are still engaging in such schemes, they will without a doubt step up their pursuit of unpaid taxes, penalties, and interest. With this in mind Recruitment agencies directors are facing the ever-growing realisation they could also become subject to charges and even criminal prosecution under the 2017 Criminal Finances Act.

While many of the non-compliant schemes are offshore and let’s just say ‘exotic’ in their approach, today from the conversations I am having, it’s clear many are reaching the conclusion that even on- shore Umbrella’s are becoming ever more problematic. In the absence of offering deductible expenses (ever more challenging given recent legislation), they are seen by some as requiring contractors to pay a fee to be paid PAYE!

This perception negatively impacts candidate loyalty, the regulatory environment and adds fuel to those questioning practices within our sector.

If providers are still asserting that workers can claim expenses, of which I am aware of some healthcare providers doing so, are they offering the worker or the agency a meaningful indemnity in the event HMRC successfully challenge the application of such expenses? Even if they are offering commercially meaningful indemnities (and we have not seen evidence of anyone offering this) it does nothing to insulate the agency from brand impairment/reputational risk in such circumstances.

So, what is the solution?

Well, for a start, as a minimum, agencies need to know all payroll providers they engage with inside out; the time for receiving ‘bonuses’, turning a blind eye to pay methods, or slipping extra providers onto PSLs are gone. Ignorance will not be bliss when HMRC knock on the door. We’ve heard stories of individuals losing their homes after the taxman caught up with them 10 years after using a particular scheme.

If retention of candidates is a key driver in a recruitment agency today, then those agencies that can guarantee complete transparency and a ‘fee-free payroll service’, will likely retain more candidates. Similarly, those agencies that can offer additional benefits to workers and improve processes will also find retention less of a problem.

Many agencies are taking payroll back in-house to try and regain control and minimise risk, but is this really why someone sets up a recruitment agency? To provide payroll? I’ve seen a lot of very talented leaders run incredible agencies in this industry and to date, as far as I’m aware, it’s never been due to their payroll acumen!

As Chairman and advisor to People, I have seen first-hand the potential of the payroll function when it is in the best hands and the relief of MDs and FDs when they move forward with a truly compliant partner who works with them to sustainably grow their business.

It’s time we as a sector work together to address the elephant in the room, HMRC are changing the stakes.

Collectively we need to acknowledge how we pay contractors is no longer just a 'necessary' low priority back-office function, the reality is it can make or break a business, get it wrong and it can affect brand equity, reputation and potentially even the longer term success of your business. 

If we don't move quickly to address the issue, it's going to continue to tarnish the reputation of our sector and open ourselves up to further press scrutiny.