Crystal Umbrella

A contradictory picture has emerged in recent days about the health of the UK’s IT skills market.  According to figures in the latest “IT Monitor” report from the specialist recruiter Computer People, demand for IT workers remains consistently above the level of supply, with pay rates rising by 1.5 per cent last month.  IT contracting roles also expanded in July by 0.7 per cent – news that will be welcomed by many PAYE umbrella workers.

The report is upbeat about the future, forecasting that the healthy trend is set to continue as businesses invest in new IT projects over the next few months.  The firm suggests that a “war for IT talent” is gathering momentum, as firms endeavour to increase revenues, service “business as usual” requirements, and lower costs.  “Projects that were previously shelved are now coming back online and the addition of new projects means that both activity and demand is increasing at a steady rate,” the report concludes.

However, such an optimistic view has been complicated by another recent report that paints a rather dourer picture.  Figures compiled by another specialist recruiter, the IT Jobs Board, suggests that the UK’s IT sector is not emerging from the recession as rapidly as other European countries, with only 50 per cent of the UK’s IT workers securing pay rises last year.  69 per cent of their Dutch counterparts and 73 per cent of German IT workers saw their pay packets rise.

IT Jobs Board spokesman Peter Healy said that many UK IT workers do not believe that they will see pay rises in the foreseeable future, although they may see improvements in other benefits.

Contractors working for umbrella companies or limited companies are likely to endorse comments made by the Minister for the Cabinet, Francis Maude, who has just issued a warning to big business suppliers of Government services – make prompt payments to the smaller firms and contractors they use, or risk being named and shamed.

Mr Maude was forthright in his condemnation of late payments, which adversely affect small enterprises and individual contractors far more severely than bigger businesses.  He said, “Prompt payment is crucial to smaller companies.  The Government has an excellent record on paying our bills quickly and we expect our suppliers to do the same and pay sub-contractors well within the 30-day limit.  When work has been done, especially by an SME, it is just inexcusable not to pay up quickly for that service”.

Ominously for the indolent culprits, he added that the Government would be “keeping a close eye” on the performance of its big suppliers vis-à-vis payments to sub-contractors and “we won’t shy away from naming and shaming those that we find have failed to pay promptly.”

Moreover, the “close eye” Mr Maude spoke of is not just rhetoric – he announced that the performance of prime contractors will be monitored by all Government departments as part of routine contract management processes.  Contractors and SMEs with a grievance can alert the Government to any backsliding over payments due via the “Mystery Shopper” service, the details of which will then be published on its website.  Finally, the Government’s prime suppliers will be pressured into paying more quickly that the 30-day standard by the Crown Representatives Team, which co-ordinates the management of major suppliers across all departments.

Late payers beware.

The economic role of freelance contractors working through umbrella companies and limited companies was highlighted this month by the PCG at the All Party Parliamentary Group (APPG) for the freelance sector.

The PCG’s aim was to generate discussion on how the Government can strengthen the economy by embracing the flexible working model exemplified by these often highly skilled workers.  The event, the first roundtable of the APPG, took place at the House of Commons and was attended by representatives from trade associations, business leaders, and academics.  It was chaired by Brian Binley MP.

John Brazier, PCG’s Managing Director, told the meeting that the UK’s freelance workforce today numbered at least 1.4 million, covering all industries from media to construction.  “We believe this figure is increasing and is adding value to the economy in a time of slow growth.  Now is the time to come together and work with Brian and the APPG to highlight these issues.  This event will allow the APPG to produce a report to raise awareness of freelancing in Government and amongst policymakers,” he said.

The meeting also heard from Professor Andrew Burke, founder and Director of the Bettany Centre for Entrepreneurial Performance and Economics, who explained that the task of securing wider appreciation of the role of freelancers had been hampered by a lack of research that could validate their economic importance.  The PCG responded by pledging to address the issue in the months ahead, aiming to produce new research in time for the next National Freelancer’s Day on 23^rd November.

The APPG aims to compile a report on “The Value of Freelancing” and present it to MPs in the autumn.

While it might seem a little callous to appear to be drawing some satisfaction from other people’s misfortunes, new figures on public sector unemployment from the Office of National Statistics may give PAYE umbrella contractors some grounds for optimism.  At the very least, they may encourage former employees to consider working through umbrella companies as an alternative to seeking permanent roles.

The ONS data shows that employment in the public sector plunged by 24,000 between February and April.  Though this cannot have been a pleasant experience for those who lost their jobs, the fact remains that essential public sector projects still have to be completed and vital services maintained.  With substantially fewer permanent staff to fulfil these functions, the question of who will perform them is an important one.

The staffing difficulties could lead managers to consider alternative recruitment options, hiring skilled contractors to complete specific projects for time-limited periods in order to ease the strain on existing employees and make up for lost skills.  This option would have the advantage of keeping permanent headcounts down whilst ensuring that vital projects are undertaken efficiently.

The news for public sector workers was not all doom and gloom, however.  The ONS report reads, “The number of people employed in the public sector fell by 24,000 over the quarter to reach 6.16 million but the number of people employed in the private sector increased by 104,000 over the quarter to reach 23.08 million”.

The private sector, in other words, appears to have vacancies for enterprising refugees from the public sector.  How many, one wonders, will choose the freelance contractor option?

Umbrella companies supplying contractors with expertise in the IT skills market could well be seeing a flurry of demand for their services in the financial services sector, according to new research by the CBI and PricewaterhouseCoopers (PwC).

During the second quarter of 2011, the survey reveals that employment in the financial services sector soared by 11,000, a surge that was also accompanied by significantly increased business volumes in the sector.  On a slightly gloomier note, the study also shows that the rate of growth has started to slow and may continue to do so over the coming quarter.  Despite this tailing off, business volumes fell only in securities trading and banking.

CBI Chief Economic Adviser Ian McCafferty said that the employment expansion in the sector was both unexpected and heartening.  “Despite sharper cost increases and a small rise in non-performing loans,” he added, “firms’ profitability continued to improve with growth in volumes and incomes.”

The survey results follow news that Lloyd’s Banking Group is planning a cull of jobs totalling 15,000 by 2014 in its efforts to bring down costs.  PwC’s UK Banking Leader, Andrew Gray, cautioned that continuing concerns about economic growth and demand have dented banks’ confidence.  He added that the Independent Commission on Banking’s recommendation that banks separate their retail facilities from their investment banking units had led to an “unsettled quarter”, despite the apparent growth.  In addition, confidence had also been hit by the loss of PPI (Payment Protection Insurance), leaving banks with an estimated bill of over £5 billion in compensation settlements.

Despite the forebodings, PAYE umbrella contractors with skills in the sector are likely to remain in demand at least in the short term.

On the back of the recently released final guidance and as the October deadline draws closer, the introduction of the Agency Workers Regulations (AWR) is a hot topic – as it should be!

“The AWR is a piece of legislation due to be rolled out in October this year.  It is working towards affording the same benefits and concessions to temporary workers as to full time employees; based on a specified contract period and a number of comparative tests.”

Various Employment Agencies and Umbrella Companies within the UK are starting to announce how they will cope with the imminent introduction, with the Swedish Derogation Model being the ‘solution de jour’, as we predicted some time ago.

Meanwhile, many Employment Agencies and recruiters sit under the cloud of confusion that the ‘grey’ AWR brings.  Right now, all that is certain is that:

1. There is no “one size fits all” solution to AWR for the myriad of temporary and contractor workers
2. Clients and hirers must not bury their head in the sand, in the hope that doing nothing will work
3. Evasion is not an option; compliancy is the only way forward!

Crystal Umbrella maintains its position that we can assist you in the attempt to negate the risk and financial impact of the AWR, on both your business and that of your clients.  We can offer protection with a range of business solutions; designed to meet the varying and specific needs of your contractor workers and help guide you through any uncertainty.

However, responsibility still lies with both parties, to undertake practical work in terms of administering the regulations to provide the relevant information between them.  This responsibility will also apply to additional parties further down the supply chain, in order to fulfill their obligations and further protect themselves from any potential claim.

So, what “practical issues” should our Agency Partners be considering right now?

Day 1 Rights and Entitlements

Firstly, hirers need to identify if there are any comparable workers/employees to their temporary workforce, then they will need to;

• Establish which collective facilities and amenities are provided to these comparable workers,  and whether temporary workers have access to them
• Decide how to provide temporary workers with information about their facilities
• Ensure that all temporary workers have access to information about relevant vacancies

12 Week Qualifying Period

• Agencies need to consider what data is required from agency workers at registration, and on each subsequent assignment, regarding work history
• Evaluate their workers’ pay and treatment to that of the hirer’s comparable worker
• Agencies should obtain information from both the client and workers, to ascertain whether they have already worked any qualifying weeks (i.e. has the clock started).
• They need to define processes/systems to assist with the capture and tracking of the 12 weeks period

Contracts

• Identify and apply amendments to existing contracts
• Ensure terms are included in these contracts
• Understand when these contracts should be issued (e.g. Swedish Derogation contract must be issued prior to first assignment after 01/10/11)

Other Steps to Avoid Claims

• Establish whether your workers could be inside or outside the scope of the regulations
• Identify and engage reputable service providers (e.g. umbrella companies) that can limit the risk of AWR claims (or indemnify against them); whilst catering for range of contractor types, using a variety of business models and advice
• Ensure all parties are aware of the regulations
• Install systems to ensure agency worker queries can be dealt with quickly and efficiently

Agencies need to:

• brief staff about AWR and understand the timescales involved
• ensure staff know what information about equal treatment they will need to request from the hirer
• understand when this information will need to be collected from hirers, to allow them to provide correct treatment to the qualifying agency workers
• consider how this information will flow if they are multiple tiers in the supply chain

As you can see there is still a lot to consider and without adequate preparation, AWR has the potential to be a serious issue, so is no “storm in a teacup”. With that in mind we will be issuing a detailed guide to AWR for Recruiters in the upcoming weeks so keep an eye out…all our Newspepper readers will be first of course.

If you’re not subscribed to our Newspepper, register now!

For more information on how Crystal Umbrella can support your Agency when AWR comes in, please contact Tim Cumberland on 0800 848 8888 or email us at feedback@crystalumbrella.com.

Contractors working through umbrella companies may be interested in recent research charting the effects of the recession on the freelance jobs market.  Recent studies by PeoplePerHour.com, Europe’s largest online jobs marketplace, and leading HR group, the Chartered Institute for Personnel and Development (CIPD) both suggest that as permanent posts disappear, freelance opportunities are rising.

PeoplePerHour.com’s study confirms the earlier findings from the CIPD research – work that had previously been kept in-house, especially in the public sector, is increasingly being outsourced to contractors.  More than 120,000 freelancers regularly scour the 70,000 plus jobs advertised on the PeoplePerHour.com website.  And, PAYE umbrella contractors take note, a fair proportion of those jobs were once available only as salaried posts in the public sector.

During 2010, the body count of salaried jobs axed from the public sector in the wake of government spending cuts reached a staggering 132,000.  But data from PeoplePerHour.com suggests that, for example, digital projects once kept in-house in public sector organisations are now being outsourced as never before: the number of digital job postings appearing on the site leapt by a breathtaking 315 per cent over the last year.

The switch to increased use of freelancers by public sector organisations is a relatively recent trend, at least when compared to the private sector, which turned to contractors swiftly when the recession started to kick in, cannily saving the additional costs associated with hiring permanent employees.

However, a worry about these trends is that saturation point may not be too far off – without truly substantial economic growth, and more public sector cuts on the way, the freelance jobs market could well start feeling a little overcrowded.

The UK’s umbrella companies and limited companies may be amongst the many small enterprises suffering from discriminatory and unfair banking practises, according to former Liberal Democrat Treasury spokesman Lord Oakeshott.

Lord Oakeshott was speaking after data from the Bank of England revealed massive discrepancies between interest rates paid by small companies and big firms. The figures show that a large company borrowing £20 million will generally be required to pay an interest rate of around 1.78 per cent, whereas SMEs are generally required to pay a stinging 3.69 per cent on a far smaller amount (£1 million).

These discrepancies make a mockery of attempts to solve the UK’s lending crisis, Lord Oakeshott believes, and suggest that the banks are choking the prospects for economic recovery rather than enhancing them. He urged the coalition to put immediate pressure on the banks if it truly wants to help small firms lead the recovery – many, he fears, will seize up entirely unless the government acts.

Net lending to UK firms has actually been falling significantly in recent months, according to the British Banking Association, which recently produced figures showing that it fell by £4.6 million in February and by £4.7 million in March. In response to these trends, some expert commentators, such as business strategist John de Groot, have advised small firms to explore other ways of obtaining finance, including approaching friends and family.

Lord Oakeshott’s comments will strike a chord with many SMEs; whether the government has the influence to make any impact on banking practises, however, remains open to question.

HMRC has decided to offer an amnesty to umbrella companies using Employee Benefits Trusts (EBTs) to boost their clients’ take-home pay, just months after announcing that it would shut the schemes down.

Provisions in the Government’s Finance Bill of 2011 squashed the offshore tax loophole exploited by EBTs, resulting in several major PAYE umbrella firms scrabbling around to restructure their organisations, leaving many of their clients out of pocket in the process. Umbrella companies were not the only firms to use EBTs, of course; several other high-profile businesses used the scheme to provide tax-efficient financial enhancements to their employees. One such – Ranger FC – is currently under investigation following the HMRC clampdown.

In a new press release, however, HM Revenue has announced that it now intends to allow companies an amnesty in order to repay outstanding NICs and tax. The statement said:

“HMRC is inviting employers, companies and other users of these arrangements to settle without recourse to litigation. This will minimise costs to both customers and HMRC. Employers and companies concerned with how their arrangements will be affected by the new legislation can respond to this opportunity to obtain certainty about their tax liabilities.”

HMRC’s Permanent Secretary for Tax, Dave Hartnett, maintained that the revenue would seek to resolve disputes without proceeding to litigation wherever that could be achieved within the law and “without damage to the Exchequer.” He revealed that HMRC was adopting a “proactive approach” to give customers a chance to work in partnership with the revenue and “establish how the facts of their case fit within the proposals.” He encouraged customers to come and discuss their situation.

Umbrella companies and other employers will be required to automatically enrol their staff in a pensions scheme from October 2012 under new Government legislation. Even firms employing temporary workers for over 12 weeks will be obliged to adopt the same rule.

The Recruitment and Employment Confederation (REC) and National Employment Savings Trust (NEST) will attempt to clarify any confusion about the new rules in a workshop on May 17^th, which is free to all REC members. The organisation’s Head of Policy, Gillian Econopouly, billed the workshop as “an excellent opportunity” for members to understand what the new auto-enrolment reforms mean for them.

A major challenge that recruitment agencies may face when the legislation comes into force will be “churn:” around a million temporary workers are engaged on assignments at any one time in the UK, many of whom frequently change not only assignments but, on occasions, recruitment agencies in the normal course of events.

PAYE umbrella contractors whose company uses the same recruitment agency to find successive placements may be less affected by the reform, but large numbers of temporary workers are expected to want to opt out after their recruitment agency has enrolled them – a process which will be exceptionally time-consuming for recruiters who will find themselves constantly enrolling and un-enrolling staff. The REC has submitted its response to the Department of Work and Pensions consultation concerning the reform, warning that the additional bureaucracy will draw recruitment consultants away from their primary task of helping candidates find work opportunities.