Crystal Umbrella

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.

A new Commission has been launched by the Recruitment and Employment Confederation with the express purpose of increasing the profile of skilled flexible workers, such as PAYE umbrella contractors, in government circles.

The Flexible Work Commission will be chaired by the former DG of the British Chambers of Commerce, David Frost CBE, and will provide practical proposals for the government on re-energising the market in flexible labour. A central part of the Commission’s remit is to promote the use amongst employers of skilled experts working through umbrella companies to help them tap into the skills they require rapidly and increase their productivity.

Commenting on the Commission, David Frost CBE said:

“Our flexible labour market is seen as one of the UK’s major competitive advantages. Quantifying the benefits to business and workers and identifying ways of enhancing this flexibility are the core aims of the Commission. This initiative will not only drive forward the political debate, but will also develop practical solutions for employers on maximizing the benefits of flexible working arrangements.”

Kevin Green, the REC’s Chief Executive, added “In the current economic climate, companies need to consider how best to organise their workforce in order to compete and bring the right skills into the business. The flexible staffing solutions developed by employers and recruiters will help UK businesses respond quickly to new opportunities. The Commission will take stock of the latest trends and innovations and will lead the debate on how Government can best ensure that, post-AWR, the UK continues to benefits from a dynamic and flexible labour market.”

The first meeting of the Commission is scheduled for January 2012.

PAYE umbrella contactors specializing in the IT skills market may be relieved to hear that the Agency Workers Regulations, which became operative on 1^st October this year, appear to be having few discernible ill effects on ‘high end’ temporary workers such as themselves.

The Recruitment and Employment Confederation’s Technology Sector Group has been meeting recently with the Interim Management Association (IMA) to monitor the impact of the AWR on the higher end of the contractor/temporary worker market. The verdict so far appears to be that the effects of AWR have been more limited than feared, although significant misconceptions are still prevalent amongst a minority of employers.

Even so, the overall view seems to be that highly skilled professionals, such as experts in IT contracting, are not being adversely affected by the regulations. In particular, the use of the Swedish Derogation model in sectors like IT appears to be helping employers retain highly skilled professionals by keeping them on the books of a single agency rather than having them work through several different providers.

The REC’s Director of Policy and Professional Services, Tom Hadley, said of his organisation’s discussions with recruiters:

“It is encouraging to see that the regulations are having little or no impact so far at the higher end of the market. However, we must not take this for granted and must continue to raise awareness amongst client organisations of what the regulations mean and do not mean. The demand for contractors and interim managers remains strong despite the AWR coming into force in October and we will continue to monitor the situation as we approach the first 12 week milestone.”

A new survey from Manpower makes grim reading for people seeking permanent posts in 2012, with the vast majority of employers declaring that they will not hire new staff during the next quarter.

PAYE umbrella contractors may, paradoxically, have less to worry about – UK firms may well start approaching umbrella companies and other sources of skilled freelancers in order to fulfil essential business projects whilst keeping permanent headcounts down. For the rest of the jobs market, the landscape looks decidedly bleak.

An indicator of how things have gone during 2011 can be found in the finance and business services sector. At the start of the year, they were the most optimistic sector of the economy; by year’s end, they have nose-dived to become one of the gloomiest. They are not alone: eight out of ten of the 2,100 employers surveyed said that they would not be recruiting during the first quarter of 2012. Those remaining balance each other out to a zero sum – employers planning to hire equal those planning to shed staff.

The famous north-south divide appears to have been replaced by an east-west alternative, with employers in eastern England appreciably more optimistic about hiring prospects than their counterparts in western England, Wales and Northern Ireland, who appear to be in the depths of pessimism.

Mark Cahill, Manpower’s MD, said  “[W]e see a number of business sectors battening down the hatches, holding on to existing levels of staff and not hiring with any great enthusiasm. Employers have now adopted a wait-and-see approach to hiring; they are cautious about the economy and the fear of a euro-wide contagion is weighing heavily on their minds.”

Jobbing PAYE umbrella contractors on the lookout for new work may wish to take a closer look at the online jobs market, according to new figures released by the internet jobs leviathan Elance.

Freelance software developers and others in the IT skills market are amongst those receiving a little seasonal cheer from the online jobs platform. The company’s annual figures have just been released and reveal the number of employers who sourced their temporary staff online has more than doubled during 2011, with every indication that the same will occur in 2012.

650,000 additional temporary jobs and contracts were posted on the website during 2011, a rise of 120% on 2010. It’s a figure that is well on course to double next year.

Elance Chief Executive Fabio Rosati said that the figures herald a “structural change in traditional employment.” Significantly more employers are turning to online and contingent work “as a core business strategy,” he added. Eight out of ten SMEs polled by Elance say they will hire up to half of their new appointees as freelancers sourced online. The shift away from traditional patterns of permanent 9-to-5 posts will also interest contractor’s working through umbrella companies.

Experts in the field of IT contracting will be interested to find that software roles (especially those concerning HTML 5) showed particularly strong growth, although internet marketing jobs rose by 132% and graphic design roles by 176%. Content writing, too, enjoyed a surge, rising by 72%. Perhaps reflecting the increasing popularity of Facebook and Twitter, demand for marketing comms contractors also rose by 53%.

Skilled PAYE umbrella contractors may find themselves being mopped up by the UK’s small start-up businesses, more than a quarter of which are struggling to recruit suitably skilled employees.

New figures from the Federation of Small Businesses (FSB) suggest that despite a pool of 2.62 million unemployed people, small firms at start up can’t find enough appropriately skilled staff to fulfil vital roles. An immediate solution, of course, is to recruit professional contractors working through umbrella companies to plug the skills gaps, but the FSB believes that, in the longer term, the government needs to do more to address the problem.

Launching an investigation into the issue with the All Party Parliamentary Small Businesses Group (APPSBG), the FSB is calling on the coalition to prioritise ‘enterprise education’ and reinstate the graduate internship scheme as matter of urgency. Moreover, with 95% of small businesses employing less that 20 people, cutting back on administrative and financial barriers to employment is a key priority, the FSB believes.

FSB Chairman John Walker said “With the private sector being relied on to drive economic recovery… budding entrepreneurs should be supported in setting-up in business, and existing businesses should be encouraged to innovate, take on staff and grow.”

The Chair of the APPSBG said that the skills minister, John Hayes, was already working diligently to close the skills gap, but his work was “being hampered by the poor performance in our primary and secondary schools, especially with regard to literacy and numeracy, and whilst Michael Gove, the education secretary, is pulling out all the stops, there is still a lot to do.”

The latest REC/KPMG Report on Jobs makes decidedly grim reading, especially for job-hunters seeking permanent appointments. Contractors working through umbrella companies may not feel like uncorking the champagne either, but they fared rather better than permanent candidates during November even so.

Permanent staff placements fell for the second consecutive month in November, hitting a rate of decline not seen since July 2009. The growth of permanent job vacancies is now at its lowest for over two years. Temporary billings, by contrast, grew during November, a trend which has continued unbroken for 28 months. Even so, the rate of growth was subdued, and feebler than that recorded in October.

PAYE umbrella contractors will hardly be jubilant about this, although they can perhaps derive a measure of comfort that contracting is not contracting, as it were, despite grim economic conditions.

Salaries and hourly rates for contractors rose very slightly, marking a ten-month low in rate rises.

REC Chief Executive Kevin Green said “This month’s Report on Jobs from the REC and KPMG highlights a rapidly declining jobs market. The market has been slowing since May but this slowdown has accelerated in the autumn. This is being driven by the double whammy of falling business and consumer confidence.”

“This is bad news for those out of work and, as a consequence, we expect unemployment to rise in December and January. On a positive note, however, the report shows that temporary staff appointments are still growing, albeit at a decreasing rate.”

He called on the government to take “more radical action” in the New Year to revive confidence if it fails to pick up very shortly.

PAYE umbrella contractors with mainframe experience the IT skills market could be in for a busy year in 2012, as a new survey of chief information officers suggests that a big majority of them fear a talent shortage next year.

Compuware has just conducted an international poll of 520 CIOs – and found that 71% of them anticipate a significant skills shortage that will impact badly on the running of their firm’s mainframe. Respondents fear that this could lead to a series of harmful knock-on effects, such as project overrun, diminished productivity and application risks.

Neil Richards, the European Mainframe Director at Compuware, said all CIOs responsible for overseeing mainframe business are bound to encounter skills shortages in the coming few years. If they currently rely on several experts who know an application like the backs of their hands, all it will take is a series of retirements for this skills base to disappear.

Moreover, he thinks that many firms are blithely unaware of the risks. Most mainframe applications, he explained, were constructed in the 1960s and 1970s and have been extended in multiple ways over the years. They tend now to be exceedingly complex and difficult to understand. The experts who currently maintain them will be exceptionally hard to replace should they leave.

Knowledge of mainframes is not the same thing as knowledge of applications, he added. Experts with sound mainframe experience understand not just the business logic of the applications but how the system functions as a whole. He urged companies to begin thinking now about back-up plans to cultivate the necessary skills before the current generation of experts depart.

We recently reported on an encouraging rise in demand for PAYE umbrella contractors during October, as recorded in Reed Recruitment’s monthly Jobs Index; now the REC’s latest JobsOutlook report appears to confirm the trend.

The data reveals a continuing strong demand for agency workers and other temps, a substantial proportion of whom are contractors working through umbrella companies. Demand has survived grim economic conditions and the introduction of the Agency Workers Regulations, which many had feared would amount to a ‘double whammy’ for the flexible workforce.

More than a quarter of employers (28%) plan to increase their temporary workforce over the next quarter, while 52% intend to maintain it at current levels. Moreover, 83% said they would be maintaining or increasing their temporary workforce over the longer term.

In the face of the feared meltdown in the Eurozone, UK employers remain confident about expanding their workforce over the next twelve months, including permanent posts. Well over half the respondents (59%) plan to appoint more permanent staff while 35% intend to maintain current levels – an impressive surge of 20 points on September’s figures.

Conceding that economic prospects continue to indicate slower growth, REC Director of Research Roger Tweedy said “Hiring intentions for temps are up on this time last year despite the Agency Worker Regulations coming into force in October. Although the full impact of these Regulations will not be apparent until the first tranche of workers end their 12 week qualifying period, the early signs are that temporary and contract work will continue to provide a key outlet for employers and workers.”

Contractors in the financial corner of the IT skills market have been taking something of a battering in recent weeks, with pay rates being slashed by 10% and many IT contracting experts forced to take an obligatory two-week unpaid break over Christmas. As the Eurozone storm clouds darken, financial services are rationalising their expenditures and cutting IT projects – a far cry from the more optimistic picture during the summer.

One industry expert believes that the near future will not necessarily be a demoralising one for PAYE umbrella IT contractors. Peter Job, who is Chief Executive Officer of Intergence, the IT optimisation consultancy, said that in the current economic conditions, more UK firms will be turning to highly skilled contractors. There is simply no time to waste with executing essential IT projects, he explained, and companies will be looking to hire more, not less, on-demand skilled professionals to meet these needs as economically and swiftly as possible.

Employing permanent staff not only involves spending money on holiday pay, sick pay, etc., but also using precious time in training them up to get on with vital IT projects. Businesses are more likely to hire skilled experts who can hit the ground running and then move on when the project is completed, Job believes.

He added “A combination of a volatile economy and increasingly complex IT environments, on demand IT resourcing is the most cost-effective and efficient way in which to bring in the necessary skills and expertise.”