Crystal Umbrella

Despite the welcome drop in unemployment revealed in last week’s figures from the Office for National Statistics, employer confidence remains fragile, driving many toward PAYE umbrella contractors and other temporary workers in 2012. So say experts from the REC and the Chartered Institute of Personnel and Development, both of whom agree that underlying economic conditions remain precarious despite welcome employment developments.

The REC’s Chief Executive Kevin Green said that the unemployment decrease was “good news and fits in with our data that shows employers intend to increase their numbers of both permanent and temporary staff over the course of the next year.”

However, he also noted the continuing turbulence in the eurozone and the parlous state of the UK’s economy following its double dip into recession. Any further bad news could hit employer confidence hard, he believes, and is already driving them to increase their use of flexible working arrangements. This is good news for contractors working through umbrella companies and less so for those seeking permanent positions.

His views were similar to the CIPD’s Gerwyn Davies, who was commenting on his organisation’s latest Labour Market Outlook Survey for the first quarter of 2012. Fewer hirers intend to cut their workforce compared to Q4 2011, although this does not necessarily translate into a rise in permanent vacancies any time soon, largely because of “the zigzagging economic backcloth.”

The CIPD survey shows that 31% of new public sector openings and 18% of new private sector positions in 2012 are likely to be temporary/contractor roles. Overall, roughly a quarter of forthcoming new vacancies will be temporary/contractor roles, as hirers remain cautious over appointing permanent staff.

The majority of employment agencies have reported that the demand for temporary workers under the new Agency Worker Regulations (AWR) has hardly been affected. Recruitment agencies are saying that there is still a high demand for temporary staff working under umbrella company contracts and that they are experiencing “little or no impact”.

The results were discovered during a recent survey released by the Recruitment and Employment Confederation (REC) as a direct result of a members “Ask the Experts” webinar, which was held this week.

The REC found that according to 86% of their members the Agency Worker Regulations are at best having an indifferent effect on short-term staff working under umbrella companies. There were only 15% who said that the regulation had caused any major effect on staffing demands.

Perhaps more worrying was the fact that the survey showed that an incredible 40% of REC members were not even aware of the regulation itself, while 51% of agencies acknowledged it but said, workers were happy to continue as normal and were “just getting on with it”.

Results produced by the REC’s monitoring of the AWR in April found that although it had caused increased paperwork for agencies and that they had encored additional costs, they felt that the temporary hiring of workers was still very strong in the UK marketplace.

HMRC has made much of its shiny new business test to gauge the likelihood of limited companies falling under IR35 but, as the old song put it, there may be trouble ahead: the planned test is already coming under attack by members of the IR35 Forum.

Once again, contractors working through umbrella companies will be breathing a sigh of relief that they chose this option. The test, which the Revenue appears determined to press ahead with this month, has come under sharp criticism by several members of the IR35 Forum, notably the PCG.

Responding to the latest minutes of the Forum, the PCG considers the particular questions included in the new business entity test to be ‘insufficient’. The organisation sets out its case clearly on its website, stating:

“PCG have tabled additional tests which would be effective risk indicators and would give genuine businesses greater opportunity to demonstrate their low risk status. For now these have been rejected by HMRC, but PCG will continue to push for their inclusion at a later date.”

Other members of the Forum are in agreement with the PCG that the test is currently formulated in such as way as to categorise many legitimate limited companies as high and medium IR35 risks. Despite the tactful language of the statement above, there is a steely resolve behind the PCG’s diplomacy. It adds: “Unless the Revenue change their stance on the scoring, PCG and other Forum members will not be able to support the Business Tests.”

Watch this space for further developments.

PAYE umbrella contractors attempting to gauge their prospects in 2012 may be modestly heartened by the BCC’s latest quarterly survey of UK businesses, which suggests that hiring confidence is returning amongst employers.

The results of the survey are far from spectacular but do suggest an improvement compared to the first quarter of 2011. The data, which the BCC defends as robust, flies in the face of last week’s OECD report, which suggested that the UK economy would slip back into recession during the first quarter of this year. The new survey predicts that growth in Q1 2012 will be weak but detectable at 0.3% and will rise to 0.6% for the year as a whole (lower than the Government’s Office for Budget Responsibility, which anticipates growth of 0.8%).

Jobbing contractors working through umbrella companies can draw a little comfort at least from these trends, even if they don’t exactly warrant breaking open the champagne. Although confidence is higher amongst employers this quarter compared to the last, it is still precariously feeble. Even so, service sector firms planning to increase their workforces rose to 11% this quarter, up 9 points on the previous quarter.

Calling for “forceful measures” from the coalition to promote growth, the BCC’s Director General John Longworth said: “It’s encouraging to see that businesses are feeling more confident at the start of 2012 than they were at the end of 2011. But that underlines the need to support and foster growth and investment by companies to ensure that the increases we have seen in the first quarter continue.”

The REC has given its verdict on the first six months of the Agency Workers Regulations (AWR) and concluded that the legislation has not dented demand for PAYE umbrella contractors and other freelancers, despite adding considerable cost and bureaucracy burdens to the UK’s recruitment industry.

Demand for contractors working through either umbrella companies or limited companies has remained steady since the AWR was introduced on 1^st October last year, even though many pundits warned at the time that the rules would decimate the contactor jobs market. Moreover, a recent REC survey of employer hiring intentions revealed that the overwhelming majority (84%) intended to increase or maintain their temporary personnel over the next three months, a proportion which rose to 89% for the longer term.

So far, there are few signs of a litigation deluge (the regulations permit workers to instigate employment tribunals if they believe equal treatment rules have been breached). The main impact of the regulations has largely been confined to particular sectors, notably driving and industrial, where the ‘Swedish derogation model’ has been most widely adopted (this obliges recruiters to pay workers between assignments).

The REC’s Director of Policy and Professional Services, Tom Hadley, said that the evidence so far is that recruiters across the country have managed the new requirements very efficiently, ensuring that arrangements for flexible working remain a “crucial outlet” for businesses and workers alike.

He added: “Rather than being a final call for agency work, the AWR has been a rallying call for the UK recruitment industry to demonstrate its resilience and ability to make things work on the ground.”

A new and very welcome development has been announced that is good news for the construction industry. The go ahead for the new £250m Center Parcs Village in Woburn Forest, Bedfordshire, which has been given to the multi-disciplined construction company of Edmond Shipway, may just be the turning point that the industry needs to bolster its tenacious hold on the economy and so help the umbrella companies within its fold.

The company will be acting as project manager and cost consultants for the build on the 360-acre site. There will be plenty for them to manage, with 625 lodges proposed plus swimming pools, a luxury hotel, sports facilities, and lots more besides.

Why is the building of Center Parcs good for the construction industry? The answer is because of the employment that it brings to that area through umbrella companies, and also because it will help to lift the constraints that the recession has put on the industry. It will also be a good time for the contract tradespeople, freelance engineers and consultants who rely on the work within the industry, as they will be added to the contractor payroll, have more money to spend, and so bolster the economy.

This project at Center Parcs is going to create 1,200 jobs within the building industry, and with a further 1,500 promised over the next two years it is the positive news that everyone involved in the construction industry needed. It is not just umbrella companies who will benefit; the suppliers and other tradespeople in the area will also see their cashflow improve.

Contractors specialising in the IT skills market may discover the are in demand again in financial services in the wake of a disquieting report by PricewaterhouseCoopers: there are rather a lot of security holes in the sector which urgently need patching to prevent cyber bandits from stealing valuable data.

The PwC survey is a disturbing read for the financial sector. Half of the financial services respondents polled said that cybercrime risks had grown over the previous twelve months, and 38% of reported cybercrime incidents in the sector took place via cyber platforms. Only 36% of respondents from other sectors reported increased cybercrime, and the figure for reported incidents was less than half that for the finance sector at just 16%.

Andrew Clark, PwC’s forensic services partner, said that the figures were “not so surprising.” The finance sector holds a huge amount of data that is especially attractive to cyber villains and, he explained, there is “an established underground economy servicing the needs of the market for stolen and compromised data.”

Mr Clark acknowledges that this is a major problem, adding:

“Our survey shows cybercrime accounts for a much greater proportion of economic crime in the FS sector than in other industries. Cybercrime puts the FS sector’s customers, brand and reputation at significant risk. Regulators are increasingly viewing cybercrime as a key area of focus and financial institutions are expected to have appropriate systems and controls in place to fight this growing threat.”

PAYE umbrella techies who have been treated a little shabbily by the finance sector over the past year may well find themselves welcomed back. Urgently.

The intrepid PAYE umbrella contractor making a living in the IT skills market will be heartened by a new analysis by giant group plc, which reveals that the UK’s IT consultancy businesses grew in number by 2% in 2011, reversing two years of precipitous decline.

The IT sector “is at last turning a corner,” according to giant group’s MD Matthew Brown. However, he also noted that the growth was “still quite modest” and urged the government to do more to help small businesses grow and generate new jobs.

Brown added that IT depends heavily on investment but that many businesses have responded to the recession by hoarding cash. IT spending has “taken a hit”. With the eurozone crisis starting to stabilise, more organisations are starting to “push the button” on IT projects that had been on ice since the downturn.

He went on:

“IT investment is crucial to boosting productivity. If businesses do not invest in IT, their long-term competitiveness will suffer. Organisations now have a lot of legacy systems in place, which require upgrading. With the economic outlook improving, IT departments should hopefully get the green light to spend.”

Investment in IT is not uniform, however. Insurers and retailers have led the way, with the former seeking hybrid actuarial/IT specialists to handle Solvency II projects and the latter developing new online platforms. Prominent amongst these is mcommerce, which allows customers to do their shopping through tablet devices or mobile phones.

In the public sector and banking, however, IT investment is likely to stay below pre-recession levels for some time to come. Even so, Brown noted, “demand for contractors is holding up reasonably well.”

Jobbing PAYE contractors may be encouraged by trends emerging in the February JobsOutlook report from the REC. Employer confidence has hit its highest level in 12 months, with hiring intentions continuing to improve steadily from December.

62% of hirers said that they planned to expand their permanent workforce over the next three months, while over half (54%) said that they would maintain current levels. Longer term, 57% said they planned to increase their permanent staff.

Contractors working through umbrella companies on the lookout for shorter term contracts can draw some comfort from the fact that, despite worries earlier in the year that the AWR was beginning to dampen the temporary jobs market, employer hiring intentions for these workers appears to be strong. 31% of respondents said that, in the coming three months, they intended to expand their temporary workforce (which of course includes many skilled contractors) while over half (54%) said that they intended to maintain it at current levels. Over the longer term, 26% of hirers plan to take on more temporary personnel and 63% plan to maintain existing levels.

The REC’s Director of Research, Roger Tweedy, said that the results of the poll strongly suggest that business and consumer confidence is picking up, even though it remains fragile. Sounding a mixed note of caution and optimism, he added:

“Last year, employer confidence began to build at this time only to fall away sharply over the summer, so it is still early days. However, there are signs that the current momentum in the jobs market will be more durable this time round.”

HMRC has now published online the minutes of the IR35 Forum’s last two meetings (held on 21^st February and 8^th March) and the contents confirm that new trial business tests will be applied from April.

PAYE umbrella contractors, of course, don’t need to worry about IR35, but freelancers running their own limited companies have frequently been ensnared by the apparently elastic ways in which the regulations have so far been interpreted by the Revenue. It is by no means without precedent for limited company directors to find themselves accused of practising the dark arts of disguised employment when the are, in fact, acting as legitimate businesses.

The new business tests are designed to put an end to these HMRC-orchestrated shenanigans, which may owe more to cock-up than to conspiracy. A set of typical scenarios will also by published on the Revenue’s website, aimed at assisting contractors to clearly determine the likelihood of their business being caught by IR35.

Originally, the Forum examined 17 typical scenarios. Eventually, agreement was reached between Forum members, the HMRC and external assessors on 14 of them. To minimise the risk of confusion, just six of them will see the light of day online. They include two illustrations of contracts ‘caught’ by IR35, two contracts clearly outside the regulations, one ‘grey’ example, and a final illustration showing how a contract may begin outside the rules but subsequently enter their scope due to alterations in a company’s practices. The scenarios will not be sector specific.

Work is underway right now in the Forum to finalise online publication of the business tests and scenarios in time for the April launch.