Our guest blogger is Liquid Friday Head of Group Operations, Joe Taffurelli. Liquid Friday is an FCSA-accredited provider of umbrella and agency support services that engages workers for use by third-parties in the UK. Below is the first installment of a two-part series about adding a temp division to your UK recruitment firm.
A guide for recruitment business leaders
Temporary recruitment is a challenging and rewarding industry which is showing fantastic signs of growth, as the UK economy emerges from the pandemic.
The thought behind this guide is to empower recruitment leaders (either in or outside of the UK) who may be considering expanding their business to include a contract / temp division. In particular, we will look at the specific legislative and compliance challenges faced by the temporary recruitment sector in the UK, so that you can evaluate threats and mitigate risk.
While this is by no means a comprehensive blueprint for success, in this guide we will cover the key considerations to help you realise this exciting part of your growth strategy.
Planning and opportunities
Even if you are a seasoned recruiter of permanent roles, temp recruitment can be a very different beast.
It is worth investing some time in thinking about the market your new temp division will operate in and your areas of specialism, which may either mean sticking with what you know or diversifying into other sectors.
UK growth sectors to watch in 2021 and beyond
Construction – with a huge skills shortage in UK construction, the opportunities for strong agency growth to fill those roles is very high.
Renewable And Alternative Energy – renewable energy capacity in the UK is expected to more than double by 2030, with significant growth in the wind power sector.
Haulage and logistics – a widely publicised shortage of HGV drivers in the UK, caused by a combination of factors, presents an area of opportunity for astute agencies.
Healthcare – demand for health professionals has been fuelled by the pandemic, those leaving healthcare professions or going over to the private sector.
Manufacturing – despite the challenges of Brexit, the UK’s uncoupling from the EU also presents real opportunities for exporting businesses, which bodes well for the manufacturing sector in the next 2-3 years.
IT and Technology – clients in these industries are reporting healthy growth figures year on year, with recruiters in this area seeing placement fees and margins of 18 – 22%.
Your market
It is important to establish that there is a buoyant contracting market in which to establish your new temp division.
In researching your market, you should consider the employment activities and dominant sectors of your target client market, the availability of candidates in your vertical and support networks you can engage with.
Don’t obsess about the competition, but be aware of who they are, where their clients are, what their rates are and how they market themselves.
Marketing
Whether you are aiming to launch your temp division as an autonomous brand, or an extension of your existing brand (and there are pros and cons of both), you’ll need to let candidates and clients know you are in the game.
Obviously, marketing is a massive function within a business, so the below are just some of the fundamental elements of effective marketing you should be thinking about:
Your brand
- Existing or new brand?
- The name of your temp division
- Your logo, does it tick the boxes? Is it easily identifiable and memorable?
Your messaging
- What do you want to say?
- How do you sound, what is your tone of voice?
- Are you reaching out to a particular sector or location?
- Will you be specialising in certain roles?
- What is your USP?
Your communications
- How will you attract and retain clients and candidates?
- What changes do you need to make to your website?
- Will you have an official launch for your temp division?
- What marketing collateral will you need?
- How active will you be on social media?
- Will you partner with any other businesses to get the word out?
- Will you be using social media?
Legislation and Compliance – key areas
Legislation and compliance are arguably the biggest barriers to building a successful temporary recruitment business in the UK.
New and regularly updated legislation brings with it the burden of understanding as well as the extra workload of ensuring compliance.
To set you in good stead, it is important to have a handle on the following key areas of compliance.
You should also understand any regulations for your sector, for example the CIS scheme if you are operating in the construction industry.
IR35
If you engage contractors through their own limited companies, IR35 is something you need to have firmly on your radar.
IR35 is a set of rules put in place by HMRC to tackle the “disguised employment” of contractors supplying their services to clients via an intermediary, such as a personal service company (PSC). In the eyes of HMRC, “disguised employees” would have an employment relationship with their client, were it not for the fact they have a limited company.
It used to be the responsibility of the individual limited company director to determine the IR35 status of their contract. These rules changed in the public sector in 2017 and reforms were rolled out to the private sector in April2021.
In the public sector, and for medium and large hiring companies IR35 is determined by the client rather than the contractor. If the client decides that the contract is caught by IR35, then the party paying the limited company, “the fee payer” (which may be you as the recruitment agency), must deduct PAYE tax and NI from the contractor at source, as they would an employee on their payroll. The fee payer also carries the liability for any unpaid tax and NI due, should an IR35 status later be reversed upon HMRC investigation.
IR35 is a notoriously complex area, but there is a wealth of help and advice to understand IR35 at Liquid Friday’s IR35 hub.
Right to Work
If you will be directly employing staff, you will need to consider Right to Work for non-UK nationals, especially given the post-Brexit changes in Right to Work for EU, EAA and Swiss citizens.
From 1st July 2021, it became no longer acceptable for employers to just accept an EU, EEA or Swiss passport or ID card as evidence of Right to Work.
In order to continue living and working in the UK after 30th June 2021, EU, EAA or Swiss citizens needed to apply to the EU Settlement Scheme, for which they are granted settled or pre-settled status.
For most EU, EAA and Swiss citizens, employers can check their Right to Work online using a digital share code and their date of birth.
Irish citizens can continue to use their passport or passport card to prove their right to work.
If someone does not have an immigration status that can be shared digitally, you will need to check their original documents.
With such a diversity of worker nationalities in the UK, this is a huge area of compliance. Further information for employers can be found here.
Criminal Finances Act
The Criminal Finances Act came into effect on 30th September 2017 and effectively made recruitment agencies responsible for ensuring that no one associated with their business facilitates tax evasion.
By far, the most significant aspect of the legislation for recruiters is the offence of failure to prevent facilitation of tax evasion. This means that criminal charges can be brought against any corporate organisation which fails to prevent its employees and other associated persons from facilitating tax evasion, plus an unlimited fine.
An example would be where a recruitment agency employee recommends a payroll provider to a worker with the reasonable expectation that correct levels of tax are not being paid to HMRC.
Importantly, liability still applies even if management is not involved in or aware of the act of facilitation. Where it used to be that employment businesses could rely on a defence that they had no knowledge of tax evasion further down their supply chain – this legislation turns that on its head.
Non-compliant payroll schemes
Following on nicely from the Criminal Finances Act, a further reason for contractor recruitment businesses to secure their supply chains is the risk from non-compliant payroll schemes.
In April 2019, HMRC’s Loan Charge saw contractors who used non-compliant schemes in the past receive retrospective tax demands going back as far as 1999.
The most common of these contrived tax avoidance arrangements were loan schemes which usually work by paying contractors a low salary with a high proportion of their pay as a loan.
More recently, recruitment businesses have been warned about so-called “Mini Umbrella Company” fraud schemes, which work by splitting up a temp workforce into hundreds of small limited companies. This is primarily to abuse two government incentives for small businesses; the VAT flat rate scheme and the Employment Allowance.
Both such models constitute what HMRC views as disguised remuneration schemes. Referring contractors to or paying them through such arrangements puts your business reputation and relationships at risk. Always carry out due diligence on any payroll intermediaries or umbrella companies you engage with ensuring that they are accredited by the FCSA who offer truly independent and robust compliance checks annually.
Employment Intermediaries Reporting
Under the Onshore Intermediaries Legislation 2014, employment businesses must return details of all workers they place with clients where they don’t operate PAYE on the workers’ payments.
This includes workers engaged through umbrella companies or via their own limited company.
This requirement under the legislation takes the form of a report sent to HMRC every 3 months.
Workplace pensions
The government pension auto-enrollment initiative was rolled out between October 2012 and February 2018. Now all employers must enroll all “eligible jobholders” in an approved workplace pension scheme.
The obligation lies with the employer for the purposes of a worker’s contract. In the absence of a contract the obligation to provide the pension lies with the party who is responsible for paying the worker.
Agency Workers Regulations (AWR)
Introduced in 2010, these regulations form part of UK labour law.
They aim to prevent discrimination of people who work through employment agencies, by stating that agency workers should not be treated less favourably than their full-time counterparts who do the same work. The regulations cover things like pay rates, working time, holiday pay and benefits.
In Part 2, we’ll cover topics like insurance – public liability, professional indemnity and employers’ liability and infrastructure like payroll, technology, and business process outsourcing (BPO).