Supply chain compliance has recently become the hottest topic among most of the recruiters we work with. For the 15 years that I have been involved in the sector, there have always been challenges associated with legislative change impacting all of us involved in the supply chain of flexible labour. Despite these changes, figures show that there is still a demand by hirers for flexible workers and more and more people are choosing this way of working. The flexible workforce continues to grow and prosper.
However, some of the most recent changes involve the supply chain working together to understand and mitigate new risks. Whether it be impact on the end hirer, recruiters, umbrella companies and the contractor relating to the restriction of T&S expenses for umbrella employees in April 2016 or the proposal to move liability for IR35 in the Public Sector (and possibly to the private sector further down the line) to the closest intermediary paying the PSC. Added to this, we are now seeing HMRC policing new tax laws by ‘upstreaming’ tax risk to the end hirer or the recruiter.
So, what does this mean for hirers and recruiters?
I believe compliance throughout the supply chain is now of paramount importance. Brookson are working with an increasing number of recruiters who have made a strategic decision to invest more time and effort in vetting and approving their supply chain with the aims of winning new business and to reassure their clients that they are protected from financial and reputational risk.
In my view, the changing legislative landscape results in a need for transparency and openness right throughout the supply chain. For example, does the hirer know which service providers their recruiters allow the contractor to work through or indeed how the worker is ultimately paid? Historically, hirers may not have been interested in this, however, enforcement action by HMRC has introduced new risks which impact then. This has been evidenced recently with HMRC issuing National Insurance assessments to hirers who have benefited from the services of contractors working through offshore schemes. Many hirers did not see this coming and are likely to have expected their recruitment partners to have managed this risk for them.
Additionally, changes to the IR35 regime will result in agencies that place flexible workers into the Public Sector (and possible those in the private sector later down the line) needing to seek additional compliance support. These changes will result in many recruitment businesses and hirers having to work together to manage IR35 risk for the first time; as well as maintaining margin, continuing to offer the same service levels and run your business as usual. With this in mind, I would encourage recruiters to turn to their service providers for a solution as many of us have been dealing with IR35 risk since it was introduced back in 2000.
Similarly, I am now seeing more and more agencies looking to work with a key strategic partner to manage these new (and anticipated future) compliance risks as opposed to merely referring to a preferred supplier list of service providers. Forging a close working relationship with a company that can work in partnership to provide industry leading knowledge, compliance support and a range of services that are suitable to candidates will undoubtedly add value to hirers and enhance an agency’s proposition moving into 2017 and beyond.
The introduction of new legislation in recent years has resulted in recruiters spending more and more time managing compliance risk, rather than doing what they do best and sourcing the best talent for their clients. Similarly, hirers are also now needing to manage the payment vehicle utilised by their off payroll workforce. The maturity of the service provider market is now at a stage where many providers, such as Brookson, are evolving into outsourcing businesses able to support those in the supply chain with their compliance burden, such as fully outsourced payroll management and legal support.
In summary, whilst we are seeing an increased amount of red tape impacting the sector, the growth of the flexible workforce continues. The increasing compliance burden and continued growth in the market is changing the way hirers, recruiters and service providers interact and the benefits of working closer together should not be overlooked. Progressive businesses will embrace these changes and will adapt to ensure that they continue to flourish in this market and support the growth of the UK’s flexible workforce.