Crystal Umbrella

Modestly encouraging news for jobbing PAYE umbrella contractors has emerged in the latest Monthly Trends analysis from the Association of Professional Staffing Companies (APSCo). Given the parlous state of the UK economy, especially with a potentially apocalyptic Euro-storm brewing, modest encouragement is considerably preferable to a poke in the eye.

The temporary jobs market has performed significantly better than the permanent market. Demand for skilled temporary workers in accountancy and finance saw a third successive month of growth, rising by 37%. Even so, this total is 35% lower than that recorded in March 2011. Temporary vacancies in engineering also rose – up 3% on February, and 5% higher than March 2011.

Employers remain nervous about hiring permies, however. Permanent openings for professional level personnel declined by 3% in March and are 20.5% lower than the same time last year. Vacancies for permanent IT professionals also fell, although demand for specialists in IT contracting remained strong.

APSCo’s Chief Executive, Ann Swain, said:

“The jobs market staged a rally at the start of the year, but has lost momentum over the past month. Demand for permanent candidates is still around a third down on last year. With the economy having flatlined during the past year it has been very difficult for employers to make all but the most essential hiring decisions.”

She went on to say that temporary workers, including skilled contractors working through umbrella companies, provide a flexible alternative, enabling employers to absorb transient spikes in workload “without having to add to fixed employment costs.”

With storm clouds gathering ominously over the Eurozone once again due to the crisis building in Greece, UK contractors working assiduously through umbrella companies cannot be faulted for worrying a little over their future job prospects; however, if British businesses heed the advice of one expert, a significant hike in contractor roles can be expected.

Ewan McKay, who is the marketing manager at Response Recruitment, has urged businesses to consider outsourcing some of their key projects – a move which, he insists, will lead to improvements in their overall performance.

Bringing in specialists in IT contracting or marketing for specific projects, McKay maintains, will help firms lower their costs, expand their pool of knowledge and improve their service to their customers or clients. Outsourcing these roles, he said, reduces service costs and associated revenue rather than increasing them.

He added: “It can help improve your customer’s experiences through enhanced customer insight and allows firms to tap into the latest innovative thinking and developments whilst limiting capital expenditure.”

McKay urged more business leaders to consider the option, claiming that outsourcing enables companies to focus their attention on their core objectives while remaining safe in the knowledge that side projects are in the capable hands of highly skilled contractors. It also helps businesses to develop new knowledge in specialist areas and establish potentially highly fruitful relationships with a range of industry experts working in the UK’s contractor community.

Given that his intervention follows hot on the heels of the REC’s latest Report on Jobs, which suggested that businesses continued to view contractors as a “valuable resource”, he might just have offered his suggestion at a very apt time.

PAYE umbrella contractors with experience in the digital IT skills market have good reasons to be cheerful, following the latest quarterly jobs index released by specialist recruiters JM Digital.

Over the last twelve months, the report reveals, demand for digital skills has ‘exploded’, with the financial sector in particular attracting experts in digital IT contracting through lucrative pay offers that can be up to 25% higher than those offered by other sectors. Remarkably, this burgeoning success has taken place against the backcloth of an otherwise moribund economy.

JM Group CEO David Pye said: “The demand for digital projects has never been so great but the problem companies now face is the shortage of digital skills available. Over the last six months we’ve seen a crossover of digital contractors moving from agencies into the financial sector. This has been a real issue for companies which are unable to compete with the rates these banks are offering.”

The head of JM Digital, David Young, confirmed that banks have indeed lured digital IT contractors not only with significantly more money but with better working hours too, which are often appreciably less than the consultancy sector usually requires. Candidates are also attracted by the challenge of the banking sector’s high levels of complexity, he added.

Not all candidates are suited to the banking world’s corporate culture, he continued, and while pay is less spectacular in the digital media sector, “it is still very good.” The working environment tends to be more relaxed without compromising on creativity, Mr Young explained, adding that digital IT contractors offering expertise in mobile/tablet platforms can expect to command around £500 per day.

HMRC has finally published its new business entity tests – and they are every bit as bad as leading industry figures from the IR35 Forum feared, being weighted in such a way as to place most contractors working through limited companies in medium to high risk categories.

HMRC appears to have completely disregarded advice given by a plethora of organisations, including the Federation of Small Businesses (FSB), the Association of Professional Staffing Companies (APSCo), the Freelancer and Contractor Services Association (FCSA) and, of course, the PCG and REC. Instead, it has ploughed ahead with its own selection of questions and its own weighting system, wholly unmodified by key suggestions for improvements.

There are significant changes to the administration of the regulations, however, including an improved helpdesk, clearer guidance, better trained Revenue teams and more detailed IR35 scenarios; however, the business tests are widely perceived as a retrograde step.

APSCo’s Ann Swain expressed her organisation’s “exasperation” at HMRC’s refusal to listen, while PCG Chairman Chris Bryce said:

“HMRC’s new guidance demonstrates their fundamental lack of courage and commitment to improve the operation of IR35. While the external members of the Forum have worked tirelessly to develop innovative solutions, HMRC appear at this stage to have opted for a risk averse approach that will not deliver the improvements that are so clearly needed.”

The FCSA’s Martin Hesketh condemned the tests for pushing a “disproportionate number of businesses into the high risk category,” a move which will obscure the identification of genuinely high-risk cases.

The tests may evolve over the coming 12 months, but expect the ranks of those opting to work through umbrella companies to swell.

PAYE umbrella techies specialising in the field of IT contracting may be perturbed to hear of a new and unhelpful trend among some corporate hirers: many are ‘stockpiling’ cash rather than feeding it back into the business, with the result that openings for highly skilled contractors are being squeezed.

The recruitment firm Hudson told the industry news source ContractorUK that the first quarter of 2012 saw significantly fewer billings for IT contractors than the same period last year. Stuart Rogers, Hudson’s associate director of IT recruitment, said: “There has been a noticeable slowdown in the contracting market as clients begin to take a more cautious approach to hiring contractors. Clients believe that significant savings can be made by reducing the contractor headcount and replacing with permanent employees.”

Rogers’ assessment was echoed by ReThink Recruitment’s director, Michael Bennett, who said that more firms are attempting to drive down overall costs by hiring permanent staff for high-end roles rather than using contractors, some of whom are being absorbed into the permanent workforce.

One of the consequences, according to another recruiter (SQ), is that contractors are prepared to work longer hours and accept the same contract with the same pay rates at renewal.

However, this is a trend that may not be possible to sustain, according to ReThink: the permanent skills base for these specialised roles is limited in the UK. Mr Bennett predicts a “tipping point” later in 2012 when companies will be forced to re-hire contractors with specialist skills if key projects are to be delivered.

He added: “So, we are pretty confident that demand will keep holding up well for contractors.”

Amidst ongoing concern amongst jobbing PAYE umbrella contractors about the potentially negative impact of the Agency Workers Regulations, a recent webinar organised by the Recruitment and Employment Confederation suggests that the effects remain minimal so far.

Key contributors to the webinar included legal experts Paul Chamberlain of Brarners, Chaffe, Street solicitors and the REC’s own solicitor and Head of Professional Services, Lewina Farrell. 140 people participated, raising queries about ‘pay between assignments’ arrangements and other issues relating to the regulations, such as calculating holiday entitlements and managing requests for information.

A poll of REC members, which include recruiters finding placements for contractors working through umbrella companies, gave an interesting snapshot of the AWR’s emerging impact (although perhaps the main question should be ‘Impact? What impact?’). 86% of respondents rated the AWR’s effect on demand as either minimal or nil. Only 15% described the impact as ‘significant’.

Given the fanfare of publicity surrounding the regulations last October when they were implemented, a surprisingly small 9% of respondents reported that workers were raising difficult questions or preparing a challenge. Just 8% believed that there would be a surge in tribunals over the next six months.

The seminar concluded that, while the effects of the regulations on demand for contractors and other temporary workers remain negligible, continued support for practical implementation was necessary. It seems that hirers still want skilled contactors for specific roles rather than taking the risk of hiring permanent staff, and are prepared to work with recruiters to navigate viable courses through the new regulations to that end.

The Office for National Statistics suggests that the UK has officially hit a double-dip recession, but PAYE umbrella contractors concerned about their future prospects might feel a little more optimistic after a quick scan through the latest Reed Job Index. Job opportunities actually grew by 7% in April compared to the same time last year, the Index reveals, even while the economy as a whole appeared to shrink.

The Easter holidays artificially depressed the figures for April, which appeared to be 6% down on March as a result; even so, a third of the UK’s main economic sectors scored well above the average score of 134 for the month. Engineering did extraordinarily well, scoring 233, and so did accountancy, with a score of 154. Those who make their living through IT contracting, though, will be pleased to find that their sector scored a robust 174 points on the Index.

Despite the Easter break, candidates seeking opportunities in the energy sector saw a 25% hike on the figures recorded for March. This is 50% higher than the equivalent figure for April 2011.

Although Easter created the illusion of a temporary slowdown, Reed’s managing director, Martin Warnes, said that, in total, this year’s figures were 7% higher than those for last year.

He added: “The creation of new jobs in growth areas, such as energy, engineering and automotive, is helping give the recovery the momentum it needs. But with the high tax burden on employers recruiting new staff, now is the time for policy makers to ensure the path to a jobs-led recovery is a smooth one.”

The ranks of contractors opting to work through umbrella companies could well be about to swell if HMRC ploughs ahead with its unilateral plan to weight criteria for assessing IR35 liability. Further details are emerging about the questions and weightings likely to be used.

Although the business entity test has been deferred until May, questions have been weighted according to HMRC’s own criteria. Only contractors scoring 21 points or above will be designated as ‘low risk’, while those scoring 11 to 20 points will be considered ‘medium risk’ and those scoring 0 to 10 points as ‘high risk’.

Questions such as “Were you previously a PAYE employee for the client you are now contracting for in the last financial year?” will count as minus 15 points, and if professional indemnity insurance is required (very common in the contracting community), contractors will score a paltry two points. Limited company contractors with dedicated business bank accounts and frequently updated business plans will score a mere one point. Those with employees contributing 25% to turnover – a tiny minority – will score a thundering 35 points, taking them safely into the low risk category.

If a contractor has been unable to recover payment amounting to over 10% of annual turnover in the last two years (a not uncommon scenario), the weighting is ten points.

These are but a snapshot of the questions and weightings HMRC appears determined to implement, against the advice of business groups. As they stand, it would appear that the majority of contractors currently working through limited companies in the UK would find themselves at medium to high risk of being caught by IR35.

Anxious PAYE umbrella contractors disappointed by the news from the Office for National Statistics that the UK has taken its second dip into recession may be heartened by the latest JobsOutlook report from the Recruitment and Employment Confederation, which suggests that the underlying picture is not as bad as the headline news might suggest.

While the contraction in the construction industry was largely responsible for the overall negative growth recorded in Q1 2012, during the same period employer confidence elsewhere actually grew to its highest point since March 2009, the REC report reveals.

The quarter was not without its wobbles. Although employer confidence rose between February and March, it did so less vigorously than between January and February. Even so, 44% plan to maintain current levels of agency workers (which include skilled contractors working through umbrella companies) and 34% intend to increase temporary staff in the coming quarter. 29% plan to do so over the next year.

Permanent roles are also on the rise: 72% of employers said that they would be recruiting permies over the next quarter and 69% plan to do so in the next twelve months.

Roger Tweedy, REC Director of Research, said: “The overall figures from quarter one are really positive. Looking forward, employers tell us they plan to make more job offers over both the short and medium term – particularly for permanent roles. Our measure of employer confidence has reached a record high point. But the growth in confidence was less than last month so it will be important to track whether increasing employer confidence is a continuing trend or whether it’s peaking.”

Hardworking PAYE umbrella contractors seeking appropriate work placements may well be getting let down by recruiters, a new survey by a nationwide HR company suggests.

The Curve Group polled 50 leading firms throughout the UK and found that over three-quarters were dissatisfied with the service recruitment firms supposedly specialising in contractors had delivered. 75% of the firms surveyed were looking for skilled temporary staff to work on specific projects on a time-limited basis, a need that propelled them in the direction of specialist contractor recruitment companies.

Unfortunately, that is when things turned sour. 78% of the firms said the recruiters did not understand their business needs, half were sent unsuitable CVs of poor quality, and 25% considered their experiences ‘dreadful’.

Jobbing contractors working though umbrella companies were equally unimpressed: half felt they had received a ‘poor’ service while 10% rated it as ‘dreadful’.

Contractors complained about unreturned phone calls, poor communication from the recruiter after placement, inadequate to non-existent feedback following interview, and extensive ignorance about their skills and the way they work.

One of the report’s authors, Lyndsey Simpson, said: “These comments and statistics reveal a serious disconnect between contractor agencies and their clients, yet with recruitment freezes in nearly every sector companies are increasingly having to rely upon contractors.”

The irony here is that a huge 89% of the companies polled had stopped recruiting permanent staff, assuming that hiring the right contractors would be rather like shooting fish in a barrel. For PAYE umbrella contractors, the moral of the story is simple: choose your recruiter wisely.