Crystal Umbrella

PAYE umbrella contractors should focus on specific sectors in specific regions rather than relying on general surveys, the REC suggests.

Reports like the recent Chartered Institute of Personnel and Development forecast, which we reported on yesterday, could leave the jobbing PAYE umbrella contractor feeling more than a tad despondent. A flat-lining labour market was predicted by the CIPD for much of 2012. However, there’s an awful lot of positive data that gets left out of general prognoses like this.

Highly skilled contractors working through umbrella companies may do better to consider the specifics rather than the general trends, and feedback to the REC from regional recruitment professionals suggest that they’re precisely the kind of worker who will be much sought after next year in a number of industries.

For example, Philip Delaloye, who is West Midlands Regional Director of the Institute of Recruitment Professionals (an REC organisation), states:

“In this region, there will certainly be opportunities in the engineering sector throughout 2012. In the automotive industry, Jaguar Land Rover are looking for hundreds of staff in its Solihull site and are planning a new engine plant in Wolverhampton which will create hundreds more jobs. The aerospace industry is also very buoyant in both the East and West Midlands.”

He went on to say that high-end, high-skilled sectors in the West Midlands, including renewable energy and technology firms, are growing healthily and looking for new talent; that means contractors as well as permies. Similar trends are emerging from the South of England, too, he added.

Many people entering the world of contracting do so by setting up their own limited companies. But it’s not the only option, especially for newcomers to the contractor community.

Carefully consider your motives and priorities for becoming a contractor before making up your mind. If managing your own accounts (or outsourcing this task to specialist accountancy firms), chasing overdue invoices personally and taking full company director responsibility for your fledgling enterprise have about as much appeal for you as toothache, umbrella companies may be a much wiser alternative.

This is especially true if you suspect that many of your contracts would be caught by IR35 (if so, you’ll be paying full NIC and PAYE rates on your income, rendering one of the chief attractions of limited company directorship non-existent).

The PAYE umbrella option is especially attractive for those who rate the appeal of choosing a wide range of work environments above the challenges of managing a company. Good umbrella companies handle all aspects of financial administration and make automatic NIC and PAYE deductions to HMRC as you earn. You never have to chase an invoice – the umbrella service takes care of all that.

Moreover, unlike limited companies, there aren’t any start-up (or close-down) overheads to worry about, which can be especially irksome if you only intend to contract for a relatively short period, or if you’re just ‘having a go’ at contracting to see it suits you before making a long-term commitment.

Opting for a PAYE umbrella service doesn’t have to be a permanent arrangement either; it’s always possible to take the limited company route later if the time seems right.

Contractors are divided between optimists, pessimists and stoics vis-à-vis business prospects for 2012, according to a recent PCG poll amongst its members.

23% of respondents appeared quite bullish about business in 2012, declaring that they expected prospects to improve. However, the confirmed optimists were a relative minority: the rest were split right down the middle. 38% believe that things would be much the same as in 2011 (the stoics) and 39% believe that things can only get worse. It remains to be seen, of course, which of these three turns out to be the realists.

The PCG claims that 2011 was a “tumultuous year” for PAYE umbrella contactors and other freelancers. They have had to contend with the implementation of the Agency Workers Regulations, which generated a good deal of uncertainty amongst many industry commentators who feared that it may have unintended, destructive effects on skilled temporary contractors. It was designed to protect vulnerable, low-skilled workers from exploitation, but some feared it would deter employers from using the services of high-end temporary professionals as well.

Not only that, but for contractors working through limited companies particularly, there has been ongoing uncertainty about the effects of IR35, which the Chancellor decided to retain with improved administration by HMRC earlier in the year. The reform process is underway, but the decision to keep the controversial rules means that uncertainties continue for those affected by them.

However, a number of recent polls (including the REC/KPMG’s latest Report on Jobs) suggest that demand for experts in IT contracting is rising healthily, a trend that is expected to continue into 2012.

PAYE umbrella contractors with skills in manufacturing and engineering could well find themselves urgently in demand during 2012, as recently released data from the ONS suggests that the government’s hopes of moving the UK economy beyond its reliance on financial services suffered a setback: ‘human capital’ has declined for the first time in nine years.

Human capital is a measure of the value of the workforce’s skills and knowledge – and it tends to suffer during recessionary times. ONS figures show that it grew steadily by £425 billion per year on average between 2001 and 2007. Growth continued between 2007 and 2007, but at a slower rate (£120 billion per year). Figures for 2010 reveal that it plunged by £130 billion in 2010, the first decline in almost a decade.

A number of experts have expressed concern about the development. Jonathan Portes, Director of the National Institute for Economic and Social research, said “By allowing unemployment to remain unnecessarily high for an unnecessarily long period, the Government will damage not just short-run output and employment, but human capital, and hence growth and employment over the long run.”

Meanwhile, Shehan Mohamed, an economist at the Centre for Economics and Business Research, warned “If human capital is lower, that means lower productivity.”

People of working age who hold degree level qualifications account for 36% of the human capital stock, the figures reveal, while those with no formal qualifications account for just 5%.

With the government desperate to rebalance the economy, umbrella companies supplying contractors with high-end skills in manufacturing and engineering could be in for an exceptionally busy year in 2012.

We reported yesterday on the REC’s commitment to taking up the government’s red tape challenge in 2012 with the aim of advancing opportunities for PAYE umbrella contactors and other flexible workers.

However, they will have their work cut out for them according to a recent analysis by the British Chambers of Commerce (BCC), which concludes that despite the government’s commitment to cutting red tape, the regulatory burden on UK businesses remains far too high.

For example, the coalition’s ‘one-in-one-out’ approach, which requires departments to ditch old and outmoded laws if they want to introduce new ones, is deeply flawed, according to the BCC, because around 42% of regulations fall outside the policy. There is also evidence that some departments are resistant to the government’s policy of increasing transparency – the BCC had to resort to Freedom of Information (FOI) requests to get hold of some regulatory Impact Assessments from several departments.

BCC Director General John Longworth said “Regulation affects businesses every day. While some regulation is necessary to improve markets, an excess can add unnecessary burdens and hinder growth among businesses. Needless regulation creates uncertainty, and damages productivity, distracting firms from innovation and expansion. It is crucial that the drive to reduce the regulatory burden is treated as importantly as all other aspects of economic policy.”

Contractors from umbrella companies seeking new opportunities in 2012 will doubtless agree with his conclusion: “Only substantive and real reductions in the regulatory burden will give companies confidence and enable them to plan for future growth with certainty and clarity.”

Christmas Eve marks the day that the AWR’s first batch of ‘equal treatment’ provisions kick in to effect for temporary workers, a significant proportion of whom, of course, are made up of highly skilled PAYE umbrella contactors.

This Saturday sees the end of the first 12-week qualifying period defined by the Agency Workers Regulations, which came into effect on 1stOctober. But what are the implications for contractors working through umbrella companies?

Tom Hadley, Director of Policy and Professional Services at the REC, quickly reassured observers that “nothing cataclysmic” was on the cards. However, recruiters should use the date as a prompt to ensure that they’re “as prepared as possible” to deal with claims or queries from affected workers, he added.

Mr Hadley went on to say that the REC’s priority was ensuring that good internal mechanisms were in place to nip misunderstandings about the regulations in the bud. A huge surge in activity was unlikely, he believes, but went on to say:

“Ultimately, the best way of avoiding any tribunals will be to be to ensure that there are clear and transparent communication channels between agencies, candidates and employers.”

He anticipated that the number of tribunals resulting from the AWR would be limited, a view that the REC shares with other organisations such as ACAS. On a general note, he said, the overall demand for agency staff – including skilled PAYE umbrella contractors – remains strong. He pledged that the REC will continue to monitor the impact of the regulations “as we move past the 24^th December milestone.”

We’ve recently reported on a number of surveys suggesting that IT contracting in the UK is in rude health despite the grim economic climate. Now Reed Recruitment has joined the optimistic chorus, with its senior divisional director, Andrew Gardner, predicting that freelancers in the IT skills market will continue to enjoy high demand in Q1 of 2012.

In fact, in news that will bring cheer to PAYE umbrella contractors in all sectors, he noted that demand for contract roles has been rising “across the board.” Mr Gardner believes that the trend will continue into the New Year, as employers remain “nervous” about appointing permanent staff to undertake new projects.

While he doesn’t foresee a boom in the contractor jobs market any time soon, he thinks that demand will remain strong, especially with respect to IT contractors. “Businesses almost can’t do without IT now,” he said, adding “It’s not an optional service.”

Retailers in particular are likely to enhance their Web capability after Christmas; they tend not to interfere with their systems during December because it is such a crucial period for them.

Given that both IT contractor roles and permanent jobs have been falling in financial services recently (unsurprisingly, given the joint effects of the economic gloom and the reforms the government is forcing on the sector), the uptake of contractors in other sectors is a welcome development. However, employers are being more meticulous in their selection; candidates have traditionally undergone three interviews before clinching the post but today, Gardner noted, they’re being grilled more frequently.

The internet-based jobs market PeoplePerHour.com has revealed figures which suggest that PAYE umbrella contractors working in the IT skills market are enjoying a bumper Christmas, with the number of businesses hiring IT consultants soaring by 612%.

The company’s Chief Executive Officer, Xenios Thrasyvoulou, welcomed the figures, which he believes show the IT sector surviving robustly in tough economic circumstances. He said “Our figures show that IT Consultants are in high demand over the run up to Christmas. Businesses are able to increase their margins using freelancers and make the most of the extra income to be made over the festive season.”

The figures support trends noted by the REC’s Technology Sector Group, which we reported on yesterday. Moreover, a survey conducted by ReThink Recruitment provides further seasonal cheer for specialists in IT contracting: techies working on e-commerce tools for tablet computers and smartphones are commanding pay rates 20% higher than staff in more conventional e-commerce roles. For example, whereas staff working on laptop- or desktop-based ecommerce projects can expect to earn around £280 per day, ReThink’s data reveals that junior designers working on mcommerce (mobile commerce) platforms secure around £350 per day.

ReThink’s Director, Iain Blair, said “We are seeing a large wave of work as retailers beef up their mobile retailing offerings. They see mcommerce as an exciting new sales avenue and are more aware than ever of the potential boom in revenue from giving customers a highly customised and slick mobile browsing experience.”

Candidates with the most sought-after skills are finding themselves juggling four or five offers, ReThink suggests.

The country’s IT recruiters are approaching 2012 with a spring in their step, with demand for IT contracting and permanent roles alike showing continued signs of strong growth.

That’s the verdict of the latest meeting of the REC’s Technology Sector Group, which collects data from 570 recruitment agencies across the UK specialising in the IT skills market. The Group’s Chair, Jeff Brooks, said:

“I was pleased to hear from many of our members that they are looking forward to 2012 with confidence about the IT jobs market. The recruitment sector has always been good at adapting to external developments. Social media is the latest change to manage and has already resulted in specialised recruiters reinventing the way they build their brand and build relationships with clients and candidates.”

Members of the group reported that demand for systems managers and product developers was especially strong, a trend which is in line with the findings of the latest REC/KPMG Report on Jobs, which suggested growing demand for both contractor and permanent roles in the IT sector.

There was other encouraging for news for PAYE umbrella contractors of the techie kind: November’s Employment Index UK from Monster reveals that the IT sector has grown by 25% compared with the same time last year, placing it at the top of the index’s growth sector ranks.

Monster’s UK and Ireland spokesman Michael Gentle said “The seasonal rise in temporary positions across sectors such as transport has supported overall annual gain of 8% in November, counter-balancing the effect of slowed growth across other sectors.”

In a ruling that may leave PAYE umbrella contractors breathing a sigh of relief that they don’t have to worry about IR35 investigations, a freelance contractor has been deemed to have worked both inside and outside the much-disliked legislation. The judge’s decision will leave many freelancers who work through their own limited companies carefully scrutinizing their contracts at renewal and extensions stages in particular.

IT contractor John Spencer worked through his limited company JLJ supplying services to a firm called Allianz for seven years. Unfortunately for him he came to the attention of HMRC, whose review concluded that he owed no less than £141,000 in unpaid income tax, National Insurance Contributions and penalties. The Revenue maintained that he was covered by IR35 throughout the time he worked for Allianz.

Mr Spencer appealed, and the outcome was the split decision at the recent Bristol Tribunal. Judge Howard Nolan ruled that for the first three years of his work with the firm, Mr Spencer was not inside IR35. However, the nature of his relationship with the company then changed, and he moved from completing specific projects to fulfilling anything the client requested of him. At this point, the judge maintained, Mr Spencer took on the characteristics of an employee. Despite this switchover, the judge conceded that it was “not easy to define” the precise point at which Mr Spencer’s role changed.

The ruling has halved the amount of money he would have been forced to part with had HMRC’s case been upheld, but has nonetheless highlighted the need for limited company freelancers to take great care over confining the terms of their contracts to specific projects.