Crystal Umbrella

Contractors working through umbrella companies may be interested to hear that the newly implemented Agency Workers Regulations will not prevent UK companies from building flexibility into their workforces, according to the REC.

A range of options remain for UK companies post-AWR, the REC insists, all of which rest on a key component: the development of a partnership approach between recruiters and employers.

The Swedish Derogation Model is but one example of legitimate new supply methods for skilled flexible workers, such as PAYE umbrella contractors, and ought not to be seen as some form of “get out clause,” the REC insists.

REC Chief Executive Kevin Green explained that one of the AWR’s effects was an innovative new method from employment agencies: employing some temporary workers on a permanent basis. He added “This is good news for temps as they get more job security. At the same time, agencies can benefit from having committed workers on their books and employers continue to have access to a crucial flexible resource.”

To all intents and purposes, the recruitment agency becomes the temporary worker’s employer with this model. Of necessity, this means that it must guarantee paying workers between assignments and making additional payments if contracts get terminated. The Swedish Derogation Model, he went on, should not be considered as a kind of AWR loophole – it was negotiated after “extensive consultation” and, he maintains, represents “a great way of protecting jobs and keeping the UK workforce flexible.”

In conclusion, he said “The key to making any new supply models work is to ensure strong collaboration and on-going dialogue between employers and their recruitment partners.”

PAYE umbrella companies on the lookout for future work placements may be intrigued by new research from the British Chambers of Commerce, which reveals that almost half of the UK’s SMEs are struggling to find appropriately skilled staff.

It’s a well-known fact that umbrella companies are a source of highly skilled professionals, who may well find themselves the immediate beneficiaries of this skills shortage as firms scramble to find the qualified staff they need to survive. 6,000 small companies were surveyed in the study and 45% reported that they were finding it either “difficult” or “very difficult” to find candidates with the necessary skills.

The exodus of refugees from the public sector, which is set to rise further, does not appear to be helping. Sadly, the firms included in the study were somewhat unimpressed by ex-public sector workers who had applied for their posts after six months or more of joblessness.

Many firms complain that younger candidates especially lack basic literacy and numeracy skills and a significant number are deficient in softer skills too, such as timekeeping and communication. However, 45% of the respondents said that they were much more confident about appointing graduates when they were available, although that percentage plunged to 29% when it came to appointing school leavers with A-levels (or equivalent qualifications).

BCC Director General, John Longworth, said that in order to remain competitive, SMEs need capable personnel; even though many of them wish to expand their workforce, they are struggling to find candidates who have the requisite skills for the jobs on offer.

Umbrella company contractors could well be of considerable help in these circumstances.

New Freedom of Information data obtained from HMRC by the PCG reveals that the Revenue’s tax yield per individual IR35 investigation increased ten-fold over the last five tax years.

While IR35 cases yielded only £1,700 each on average until 2005/2006, the haul per case soared to almost £17,000 between 2006 and 2011. The data suggests better targeting by HMRC. In the first six years of the notorious regulations’ existence, the Revenue investigated 3,886 IR35 cases, which collectively netted £6.7 million. But between 2006 and 2011 only 322 cases were investigated, generating just slightly less – £5.4 million.

Even so, a leading chartered accountant and IR35 expert, Paul Spindler, remains decidedly underwhelmed by the figures. Over ten years, he noted, the average yield remains “shockingly low” at just £3,500 per enquiry. He shared his suspicion that many of HMRC’s IR35 enquiries have resulted in “no [tax] recovery whatsoever.”

HMRC has so far only revealed a “snippet” of the whole IR35 story, he added, making no mention of taxpayers who, like contractors working through umbrella companies, have opted for PAYE as a direct result of the legislation.

Mr Spindler’s views were endorsed by two other IR35 experts, Seb Maley of Qdos and Kate Cottrell of Bauer & Cottrell. Both believe that focusing on the apparent ineffectiveness of IR35 overlooks its “deterrent effect”, which may be the very factor that generates the most revenue for the Treasury rather than IR35 enquiries themselves.

The latter have fallen, they suspect, partly because HMRC is targeting higher risk workers, and partly because freelancers are learning how to operate outside of IR35 danger, such as taking the PAYE umbrella option.

Over the years, PAYE umbrella contractors in the IT skills market have acquired a reputation for their forward-thinking embrace of flexible working arrangements. However, a new study suggests that most of them actually rate job stability most highly in their list of priorities.

Specialist recruitment agency Elan commissioned the survey of 500 IT workers, asking them to rank their top three priorities for moving into a new role. From IT business analysts to those holding support or developer roles, IT contracting professionals are less the adventurous ‘guns-for-hire’ of popular mythology and more the conservatively security-seeking family men and women of everyday life.

Although the proportion of permanent workers who rated job stability as their top priority was highest (83%), a surprisingly high number of IT contractors shared their views – 67%.

The results suggest that contractors and permanent workers alike are being affected by the climate of economic uncertainty that hangs ominously over the UK at present. Moreover, it may also suggest that the IT contracting workforce today is a little older than it was a few years back – people in their thirties with family commitments and mortgages are more inclined to seek work stability than young adults in their twenties.

Flexibility about working hours, however, came in as the second highest priory, with 68% of permanent workers and 60% of contractors choosing it as the ‘runner up’ priority. Both groups selected technical training as their third priority in roughly equal measure.

IT contractors, it seems, are rather more ‘cuddly’ in their approach to working life than their folklore image suggests.

Demand for PAYE umbrella contractors specialising in the IT skills market could be set to rise as more UK businesses move toward paper-free operations, according to comments made by the co-founder of Ecolibris.net, Raz Godelnik.

Adopting electronic formats, such as e-billing, can radically improve a company’s economic efficiency, Mr Godelnik believes. As more businesses adopt this method, of course, new IT systems will be required, a development that could well result in a surge of work for IT contracting specialists. Businesses must ensure that the necessary infrastructure is in place before making the move to internet billing, Grodelnik added.

He thinks that companies should do more to encourage reductions in the use of paper, suggesting that employees who save paper could be given incentives to keep up the good work: “Many times you see companies that save a lot of money but they save a lot of money because the employees are taking these steps. It’s good if you can share these savings, whether it’s through bonuses or launching some sort of competition between teams.”

With the right IT advisers on board, Grodelnik believes, UK firms can capitalise on a plethora of software options currently available to ditch paper and create wholly digitalised environments: “If it’s about invoices or sending receipts, billing and so on – you can find software that is a good fit for small companies and not as expensive.”

There is already, he explained, a range of different levels of software available, many of which are ideally suited to smaller firms. An example is new PDF software that doesn’t permit staff to make paper printouts of the document.

PAYE umbrella contractors working within travelling distance of Liverpool may soon find that opportunities for work placements in the area will surge, thanks to a report compiled by former Tesco boss Sir Terry Leahy and Tory party grandee Lord Heseltine.

The document explores the possibilities for job creation, economic growth and investment in Liverpool, and contains a number of significant recommendations that appear to have the approval of the government. Amongst the proposals is the immediate implementation of Network Rail’s £560 million ‘Northern Hub’ plan, which the authors protest is “long overdue.”

Supporting the government’s desire to promote a culture of enterprise, Sir Leahy said that he and Lord Heseltine “firmly believe Liverpool can play a central role to delivering that vision.” He went on: “There has been a great deal of change in Liverpool already, but Lord Heseltine and I wanted to identify how the strengths of the city and its surrounding areas could be built on to ensure success, and help those parts that need extra support.”

The report sets out to combine ideas “that have a real potential for growth.” Already, local councils in Liverpool, local businesses and the Liverpool City Region Local Enterprise Partnership have agreed to co-operate together to stimulate growth as per the report’s recommendations.

If it gets the full seal of approval from government and the recommendations are implemented, contractors working through umbrella companies and many others could benefit substantially. Current estimates are that it would generate at least 30,000 new jobs in the area, and improve links between Liverpool and Yorkshire by providing 700 trains a day (that’s 44 million passengers in a year).

A new study from the REC suggests that employers are increasingly shifting from traditional models of talent management towards highly skilled flexible workers, such as PAYE umbrella contractors, instead. Moreover, they are utilising umbrella companies and other flexible sources of talent on a long-term basis.

The new ‘open’ model described in the study (Talent Acquisition in Turbulent Times) works by placing a ‘cloud’ of contractor talent around a core of permanent employees. Employers are thereby able to align their need for specific types of talent with their increasingly flexible business aims.

The report’s author, REC Director of Research Roger Tweedy, said that the newly emerging open model “combines permanent workforce flexibility with the next generation recruitment skills of leading staffing agencies to challenge existing internal recruitment solutions that have become gridlocked by time and cost pressures.”

Tweedy’s analysis drew on data from the REC’s own monthly JobsOutlook surveys, as well as US research supplied by the Human Capital Institute. Both revealed a substantial shift from traditional talent procurement approaches. For many companies, traditional internal recruitment procedures have become ‘gridlocked’, the report finds, with the result that employers desperate to bridge skills gaps have turned to skilled temporary workers, such as professional contractors, instead.

In the race to appoint the best candidates over the next few years, the report predicts that employers will need to manage “rapidly changing technology, lack of internal resource, continued pressures on costs, new ways of working and a new breed of candidate – against the backdrop of continuing economic uncertainty and fluid business priorities.”

For the jobbing contractor, having one’s head in the newly emerging cloud may be a very wise move.

People who have ditched salaried employment in favour of self-employment often feel elated when they secure their first contract. This is the point at which the recruitment agency that sourced the placement may advise you to join a PAYE umbrella firm.

Although the option may not suit everyone, there are some very sound reasons why finding a good PAYE umbrella firm will yield highly beneficial outcomes for many freelancers. For one thing, you will be spared the hours of paperwork involved in managing your invoices, expenses, tax and national insurance contributions. Umbrella companies are effectively payroll outsourcing agencies and, for a modest fee, they free contractors to get on with earning money by relieving them of all the financial paperwork associated with self-employment.

They will raise invoices on behalf of their contractors, accurately recording the hours and days worked. When they receive payment from the agency or client you have worked for, they deduct tax and national insurance before paying you. What you receive in your bank account is all yours. You will receive a payslip detailing the deductions and payments. An efficient PAYE umbrella firm will also process all the business expenses you are entitled to.

By choosing a PAYE umbrella firm, you place yourself on agency payroll, which means that you are also safely beyond the scope of IR35 investigations for ‘disguised employment’. HMRC considers you an employee because tax and national insurance are deducted and sent to the Inland Revenue on a PAYE basis, even though you remain free to claim business expenses.

PAYE umbrella contractors hoping that the Government’s NIC holiday scheme may encourage smaller businesses to provide more placement opportunities may be disappointed to hear that only 7,000 of an estimated 400,000 SMEs have made use of the initiative.

Last week David Cameron was forced to admit that only a paltry 1.8% of the eligible SMEs had so far enrolled. Under the scheme, employers in specific areas of the country would be permitted to forego NICs for the first ten employees they hired.

The failure of the initiative has raised questions about the Government’s growth strategy, with Mr Miliband wasting no time in declaring that it wasn’t working. Beyond the political Punch and Judy spectacle, however, other industry voices are expressing the view that the National Insurance Holiday was unlikely to generate the growth the Government had predicted.

The Government is in fact aware of research that reveals that NICs, while not irrelevant, are not the primary concern of SMEs – red tape is. Specifically, it is the red tape surrounding employment that is deterring many prospective employers from hiring new staff. For example, the recently implemented Agency Workers Regulations are estimated to cost UK companies up to £2 billion in compliance activity.

Many employers remain confused about the legislation, which was implemented in full despite numerous pleas from industry bodies for amendments, deferrals and reviews. Some fear that the confusion may adversely affect contractors working for umbrella companies, although organisations such as the REC and PCG insist that this need not be the case.

Despite the Government’s Red Tape Challenge, the Forum for Private Business has revealed that compliance activity is actually rising.

Although news has been circulating over the last couple of weeks that a number of big financial institutions have cut their pay rates for contractors in the IT skills market, the ranks of highly skilled professionals making a living out of IT contracting remain at a very healthy level, according to recent research by the PCG.

The PCG’s survey of the UK’s freelance workforce found that 574,000 of the country’s 1.4 million freelancers were IT contractors. 200,000 of them work through umbrella companies, with the remainder made up of those who work through their own limited companies, those on agency payroll and those who work as sole traders.

The figures will come as a reassurance to IT pros considering contracting as a career; compared to ten years ago, many companies, especially in the financial sector, are relying more heavily on IT contractors than at any time previously. Even though high-profile financial institutions like Lloyds, RBS and Nomura have announced cuts in their hourly rates for IT contractors of around 10%, it is clear that the IT skills market is much bigger than finance alone. Topping the corporate agenda for many companies are the twin issues of developing cloud computing technologies and improving information security – bread and butter issues for IT freelancers.

Not only that, but with the burgeoning rise of mobile technologies amongst the general workforce, those IT professionals with expert knowledge in devising tailor-made mobile applications will remain in high demand, as will those with .Net and SAP skills.

Despite the finance sector’s penny-pinching, lucrative contracts for IT specialists still abound in other sectors. Nil desperandum!