Crystal Umbrella

Contractors working through umbrella companies and limited companies might wish to take up some advice contained in a new report from OfficeCavalry.com: start using social media to enhance your success.

The report presents figures which show that a massive 71 per cent of UK businesses are now working to improve their online presence through social networking sites such as Facebook, Twitter and LinkedIn. A quarter of those polled reported that they considered the use of online social networking as a business priority.

Contractors in the IT skills market might especially capitalise on this growing trend – there is likely to be a boom in the demand for social media skills at the very least. Thousands of short-term vacancies in this area are forecast in the report for 2011.

Fifteen per cent of the firms surveyed said that they planned to create specific new roles to manage the boom in networking. For the jobbing PAYE umbrella contractor, however, there’s even better news – a hefty 65 per cent of the businesses polled will consider hiring contractors and freelancers for these roles in order to achieve a more agile, flexible and scalable solution.

Commenting on the survey, OfficeCavalry.com’s founder, Andy Turner, said that organisations are changing the way they do business thanks to the rise of online reputation management and social media. As the social media landscape is ceaselessly changing, however, companies will be seeking to invest in more cost-effective, scalable and responsive approaches to managing the new media. Enter the social media savvy contractor.

PAYE umbrella contractors have received a shot in the arm from a new study which shows that a majority of small to medium-sized enterprises (SMEs) in the UK consider freelancers vital to their stability.

The research, which was conducted by the specialist freelancer recruitment firm Office Cavalry, reveals that more than half of the 1,000 SMEs polled (52 per cent) believe that workers on contractor payroll will make a “significant contribution” to their workforce over the coming five years. A huge majority – 93 per cent – consider freelancers a “real alternative” to hiring permanent staff, which is encouraging news to contractors working for umbrella companies.

Commenting on the survey, Office Cavalry spokesman Andy Turner said that the figures show how much smaller firms are changing their operating methods. Amongst SMEs, there are growing initiatives to do business with the public sector, better access to finance and a turn towards flexible working arrangements for staff, he added. Together, these trends are “effective, scalable and flexible,” Mr Turner said.

Most commentators agree that future growth in the UK will be substantially driven by SMEs. Whilst organisations such as the Chartered Institute for Personnel and Development (CIPD) believe that initiatives such as the government’s proposed Employer’s Charter will have little impact on the UK’s labour market, there are growing signs that business confidence and consumer demand are returning. The REC’s latest Jobs Outlook, which was published last week, revealed that many UK companies are planning to expand their workforces during 2011, including hiring more temporary staff.

New figures included in the latest Monster Employment Index suggest that contractors working for umbrella companies could be amongst those who do well if the upward trend in job opportunities recorded continues. The Index shows that the number of jobs posted online in December were three percentage points higher than those posted during the previous month, and a healthy 11 per cent higher than figures recorded for the same time last year.

A degree of caution in extrapolating from these figures is necessary, of course, as the full impact of the government’s austere deficit reduction measures have yet to be felt within the wider economy. In particular, the rise in VAT earlier this month and job losses due to public sector spending cuts may make the next quarter a challenging one for PAYE umbrella contractors.

Even so, the figures are encouraging. Commenting on the increase, a spokesperson for Monster UK and Ireland, Isabelle Ratinaud, said that they show a “clear improvement” compared to the state of affairs in 2009, when the UK jobs market was considerably more depressed. She noted that whilst the upward trajectory has continued, the rate of increase had been slowing down over the last few months. She believes that many employers and recruiters will be playing it safe over the next quarter at least.

These views resemble those of KPMG Partner Bernard Brown and REC Chief Executive Kevin Green, who both anticipate that recruitment may slow over the next few months despite a recent surge in opportunities. Ms Ratinaud added that she, too, expects employers to hold off on embarking on a “new wave of recruitment” until they have a clearer sense of how 2011 starts to unfold.

Contractors working for umbrella companies may be interested in the distinctly cool reception given to the recent jobs summit (10th January) by the Chartered Institute for Personnel and Development (CIPD). Prime Minister David Cameron met with business leaders from across the UK earlier this week to discuss the issue of job creation. But according to the CIPD, the policies on offer from Mr. Cameron’s government will have only a “marginal impact” on employment during 2011.

To be fair, the CIPD’s Chief Economic Adviser, John Philpot, welcomed the summit but urged the public policy debate about job creation to focus on an “economic assessment of the determinants of growth and employment.” He went on to say that the UK’s flexible workforce, which of course includes many PAYE Umbrella contractors, has a high level of job creation potential. This reputation was enhanced by the encouraging rate of job creation in the private sector seen last year, he added. However, he maintained that business pledges and policy initiatives are unlikely to have a significant positive impact on employment during 2011.

His comments coincide with the release of the latest “Report on Jobs” from the Recruitment and Employment Confederation (REC) and KPMG. Although the survey revealed that both permanent post temporary vacancies continued to rise during December, the two organisations agreed that the next few months are likely to be “very tough” vis-à-vis employment opportunities, not least because of the impact of the recent VAT rise and public sector cutbacks.

A new amendment to the Income Tax Earnings and Pensions Act of 2003 will close a loophole which some freelancers on the contractor payroll may have used to avoid or defer income tax or National Insurance Contributions (NICs). Henceforth, HMRC intends to tackle all arrangements, including trusts, that are aimed at offering tax-advantaged alternatives to saving beyond the allowances permitted in a registered pension scheme.

The government has been alerted to the fact that some third party arrangements seek to disguise remuneration by claiming that an employee has no legal right to a sum of money under the structure of the agreement, when in fact he or she may be enjoying the full benefits. The targeted arrangements seek to argue that NICs and income tax will only be due on the sum provided during the employment period, rather than on the full value of the assets.

The new legislation will come into effect on 6th April 2011, and aims to ensure that – other than specific exemptions – all rewards, recognitions or loans earmarked for an employee’s benefit, whether current, former or prospective, will be eligible for income tax and national insurance contributions. The exemptions include registered pension schemes, ordinary commercial transactions and approved employee share schemes. The HMRC website contains an explanatory note as well as details of the draft legislation.

Contractors working for a PAYE umbrella company may be unaffected, but other freelancers may wish to consult a qualified contractor accountant for advice.

Contractors in the IT skills market may endorse the views of a leading security expert, which suggests that IT freelancers on the contractor payroll may need to assist the companies they’re placed with to become more aware of fundamental security issues.

According to Robert Cheyne, an expert with SafeLight Security Advisors, not enough end users are being adequately engaged by companies to take an interest in protecting their firm’s data. In an interview with SearchSecurity.com, Mr Cheyne said that it’s fairly typical for employees to assume that data security is already being taken care of by someone at a higher level, whereas the truth is that employees are a “major part of the security process.”

The issue, which clearly has relevance for the UK workforce, came to light in Boston, Massachusetts, when an employee of a healthcare company emailed sensitive bank details to a mortgage broker. The worker concerned mistakenly believed that the connection was secure when in fact it wasn’t.

One way forward advocated by another security commentator, Winn Scwartau, is for the industry to come up with solutions that have implicit security models integrated into them. This approach would remove the onus from individuals and move data security to an automatic, behind-the-scenes level.

This news comes in the wake of the first two monetary penalties issued by the UK’s Information Commissioner’s Office following major breaches of the Data Protection Act.

A study carried out by KPMG/Total Politics has shown that as a result of the recession and cuts of up to 15% in local authority budgets, major job cuts are likely in the next 18 months. HR recruiters have claimed that this will create opportunities for contractors and freelancers.

UK Head of Government at KPMG, Ian Hasdell said, “Reductions in Whitehall funding to local governments in England and Wales could be in the order of 15 per cent in real terms, the toughest squeeze on council finances in the post-war era.”

Director of Optimus Consultants Mike Henry, commented, “Clients will require an expertise in areas of change. Those councils that are experiencing change will be letting people go in certain areas.”

This was echoed by the Associate Director of Hudson HR, Anthony Pierce. He said, “Organisational change professionals will be in demand on short to medium term contracts. Employee relations staff will be in demand. They might need to up skill there. The big opportunity is in organisational development.”

The survey responses showed that 57% of local authority chief executives agreed that reductions in staffing levels were, “very likely”. They also admitted that they were uncertain how they would uphold service levels, with efficiency cited as one of their main concerns.

This is set to be a hot topic as the general election looms within the next twelve months with cuts in spending predicted whoever wins power. Professional contractors look set to benefit from these cuts as their expertise will be called on to fill gaps in services.

Having seen the announcements that HMRC were to ‘get tough’ with tax evaders in a targeted investigation spending 24% (£960 million) of their entire £4bn budget for 2009/10 , it has now become apparent that in addition, they are turning their investigations towards Recruiters and Umbrellas.

As part of HMRC’s ongoing review, some of the focus will turn to whether travel, subsistence and accounting expenses are being correctly paid. With three possible outcomes from the investigation, many Recruiters and Umbrellas should be extremely concerned that their incompliant practices will finally be dealt with and they should be well prepared for the consequences.

The three outcomes are simple. The first is that HMRC is happy with how the agency or Umbrella Company operates. The second, being that HMRC is unhappy, and will demand changes are made to operations. The third, being that HMRC decides the agency or umbrella should not have paid the expenses tax-free and in this case a settlement would be agreed between the parties, with one or the other agreeing to pay the tax due.

This is a very serious concern for many involved within our industry. However, agencies that deal with reputable, fully audited and compliant Umbrellas, such as Crystal Umbrella, need have no cause for concern as they can be rest assured that all practices and operations are well within HMRC regulations.

Another focus will be on the “Spotlight Campaign” which is being utilised to weed out those unscrupulous companies which still allow UK contractors to take their money offshore and get out of paying their social contributions used to maintain and balance UK Plc.

The Professional Contractors Group (PCG) held a round table event yesterday, chaired by their managing director, John Brazier. The key issues on the agenda were the legal definition of the term ‘contractor’, how to influence political parties ahead of the general election and how the negative effects of the ‘Agency Workers Directive’ can best be tackled.

This event was attended by stakeholders from sector, industry and national bodies along with recruiters and industry commentators. There were speakers from the Recruitment and Employment Confederation (REC), the National Union of Journalists (NUJ), tax specialists and an Emeritus Professor of Employment Law. The PCG had invited a government speaker to attend but the invitation was declined.

The different terms for contractors were discussed as used in different industries such as freelancers, interims, locums and supplies. Information gathered at the event suggests that politicians view only full time employment as the ‘proper course’ and therefore contractors are seen as ‘deviant’ for not following this route. With regards to defining contractors in the employment law statute books it was agreed that they must make a distinction between contractors and traditional small businesses.

It was agreed that contractor bodies hoping to influence political agendas must reach agreement now as manifestos are currently being created. One speaker, however, warned that no political action on contractors will happen quickly as it will take until the next election – to be held no later than 3^rd June 2010 – for pledges to reform legislation to be written into manifestos and then at least another year for implementation by the victorious political party.

The EU has driven the Agency Workers’ Directive and this was widely recognised at the meeting. This has been particularly problematic as there is no understanding of the flexible workforce which is represented by freelancers and contractors in the UK using agencies who effectively act as sales and marketing departments to contractors. Also, it is difficult to reach an understanding of what constitutes a ‘vulnerable worker’. The implementation window for this directive is April 2010-October 2011. A consultation is in process by the Department of Business, Innovation and Skills on its implementation.

The consensus of the day was that contractors continue to be poorly defined and understood despite providing a necessary and valuable service to UK PLC.

The Keep Britain Working campaign has carried out a new survey which reveals the effect the recession has had on working in the business services sector. 28% have been affected by a reduction in salary while 25% have taken a reduction in working hours. Also 22% have lost their benefits package.

This level of flexibility is unparalleled for permanent employees and their employers but contractors and freelancers have long worked in this manner and it is certainly good news for contractors. UK organisations are realising the benefits of an adaptable freelance workforce that has no associated employment risk.

The 1.4 million strong workforce of contractors has been credited with making the UK a very appealing place to do business. It is satisfying to these workers that their flexibility and creativity has been proclaimed to be the saviour of the UK economy.

James Reed from Keep Britain Working commented, “The UK workforce has demonstrated unprecedented flexibility during this recession allowing organisations to explore a whole range of cost-cutting responses, other than relying solely on redundancies.”

Further research by Harvey Nash, a specialist IT recruitment firm, demonstrates that within the next 12 months there is likely to be a wealth of work opportunities for contractors throughout Europe as 76% of senior IT executives plan to outsource more opportunities in IT, project management and interim management.

Only time will tell if employers only enjoy a flexible workforce during the economic downturn and return to a more permanent employment structure once the economy has recovered. However, if employers do decide to stick with this model of flexible working, it could open up significant opportunities for contractors in the future.