Draft 2
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
LAUNCHING A TEMP DIVISION<br />
IN THE UK<br />
A guide for recruitment business leaders<br />
DRAFT 2
CONTENTS<br />
Introduction<br />
Planning and opportunities<br />
Top 5 sectors for high growth in 2018<br />
and beyond<br />
Your market<br />
Marketing<br />
Legislation and Compliance<br />
IR35<br />
Criminal Finances Act<br />
Non-compliant payroll schemes and<br />
the 2019 Loan Charge<br />
Employment Intermediaries Reporting<br />
Agency Workers Regulations (AWR)<br />
Workplace pensions<br />
Insurance<br />
Public Liability<br />
Professional Indemnity<br />
Employers Liability<br />
Infrastructure<br />
Payroll and credit control<br />
In-house technology<br />
Business Process Outsourcing - BPO<br />
1<br />
2<br />
2<br />
2<br />
3<br />
3<br />
4<br />
4<br />
5<br />
5<br />
5<br />
6<br />
6<br />
6<br />
6<br />
7<br />
7<br />
7<br />
7<br />
8<br />
INTRODUCTION<br />
Recruitment is a challenging and rewarding industry which is<br />
showing fantastic signs of growth.<br />
The thought behind this guide is to empower UK recruitment<br />
leaders who may be considering expanding their business to<br />
include a temporary / contract division.<br />
In particular we will look at the specific legislative and<br />
compliance challenges faced by the temporary recruitment<br />
sector, so that you can evaluate threats and mitigate risk.<br />
While this is by no means a comprehensive blueprint for success,<br />
we will cover the key considerations to help you realise this<br />
exciting part of your growth strategy.<br />
DRAFT 2
PLANNING AND OPPORTUNITIES<br />
Even if you are a seasoned recruiter of permanent roles, temp<br />
recruitment can be a very different beast.<br />
It is worth investing some time in thinking about the market your<br />
new division will operate in and your areas of specialism, which<br />
may either mean sticking with what you know or diversifying into<br />
other sectors.<br />
Top 5 sectors for high growth in 2018 and beyond<br />
5<br />
4<br />
3<br />
2<br />
1<br />
Construction - with a huge skills shortage in UK<br />
construction, the opportunities for strong agency<br />
growth to fill those roles is very high.<br />
Healthcare - the challenges and uncertainty caused<br />
by IR35 in the public sector seems to be levelling<br />
out, with demand for health professionals once<br />
again growing at a steady pace.<br />
Manufacturing - Despite the uncertainty Brexit<br />
brings, it also presents real opportunities for<br />
exporters, which bodes well for the manufacturing<br />
sector in the next 2-3 years.<br />
Engineering - One of the top two growth sectors<br />
during 2018, although manufacturing and<br />
healthcare are starting to close the gap.<br />
DRAFT<br />
IT and Technology - Top of the list, with clients in<br />
these sectors reporting healthy growth figures<br />
year on year, with placement fees and margins of<br />
18 - 22%.<br />
Your market<br />
It is important to establish that there is a buoyant contracting<br />
market for your new business arm to grow and thrive in.<br />
In researching your market, you should take into account the<br />
employment activities and dominant sectors of your target<br />
client market, the availability of candidates in your niche and<br />
support networks you can engage with.<br />
Don’t obsess about the competition, but be aware of who they<br />
are, where their clients are, what their rates are and how they<br />
market themselves.<br />
2
Marketing<br />
Whether you are aiming to launch your temp division as an<br />
autonomous brand, or an extension of your existing brand (and<br />
there are pros and cons of both), you’ll need to let candidates<br />
and clients know you are in the game.<br />
Obviously marketing is a massive function within a business, so<br />
the below are just some of the fundamental elements of<br />
effective marketing you should be thinking about:<br />
Your brand<br />
Existing or new brand?<br />
The name of your temp division<br />
Your logo<br />
Your messaging<br />
What do you want to say, and how?<br />
Are you reaching out to a particular sector or location?<br />
Will you be specialising in certain roles?<br />
What is your USP?<br />
Your communications<br />
How will you attract and retain clients and candidates?<br />
What changes do you need to make to your website?<br />
Will you have an official launch for your temp division?<br />
What marketing collateral will you need?<br />
How active will you be on social media?<br />
LEGISLATION AND COMPLIANCE<br />
Legislation and compliance are arguably the biggest barriers to<br />
building a successful temporary recruitment business in the UK.<br />
New and regularly updated legislation brings with it the burden<br />
of understanding as well as the extra workload of ensuring<br />
compliance.<br />
To set you in good stead, it is important to have a handle on the<br />
following key areas of compliance.<br />
You should also understand any particular regulations for your<br />
sector, for example the CIS scheme if you are operating in the<br />
construction industry.<br />
DRAFT 2
IR35<br />
If you engage contractors through their own limited companies,<br />
IR35 is something you need to have firmly on your radar.<br />
IR35 is a set of rules put in place by HMRC to tackle the<br />
“disguised employment” of contractors supplying their services<br />
to clients via an intermediary, such as a personal service<br />
company (PSC). In the eyes of HMRC, “disguised employees”<br />
would have an employment relationship with their client, were it<br />
not for the fact they have a limited company.<br />
Up until April 2017, it was the responsibility of the individual<br />
limited company director to determine the IR35 status of their<br />
contract. Then the rules in the public sector changed.<br />
Under the Off-payroll Working Rules in the public sector, IR35 is<br />
determined by the public sector client rather than the contractor.<br />
If the client decides that the contract is caught by IR35, then the<br />
party paying the limited company, “the fee payer” (which may be<br />
you as the recruitment agency), must deduct PAYE tax and NI<br />
from the contractor at source, as they would an employee on<br />
their payroll. The fee payer also carries the liability for any unpaid<br />
tax and NI due, should an IR35 status later be reversed upon<br />
HMRC investigation.<br />
It was announced in the 2018 Budget that from April 2020, these<br />
rules will be extended to the private sector. The government<br />
have confirmed that these changes in the private sector will only<br />
apply to large and medium sized companies (Companies Act<br />
definitions) and there will be further consultation on the<br />
operational detail.<br />
IR35 is a notoriously complex area, but there is a wealth of help<br />
and advice to understand IR35 at Liquid Friday’s IR35 hub<br />
Criminal Finances Act<br />
The Criminal Finances Act came into effect on 30th September<br />
2017 and effectively makes recruitment agencies responsible for<br />
ensuring that no-one associated with their business facilitates<br />
tax evasion.<br />
By far, the most significant aspect of the legislation for recruiters<br />
is the new offence of failure to prevent facilitation of tax<br />
evasion.<br />
This means that criminal charges can be brought against any<br />
corporate organisation which fails to prevent its employees and<br />
other associated persons from facilitating tax evasion.<br />
An example would be where a recruitment agency employee<br />
recommends a payroll provider to a worker with the reasonable<br />
expectation that correct levels of tax are not being paid to<br />
HMRC.<br />
Importantly, liability still applies even if management is not<br />
involved in or aware of the act of facilitation. It used to be that<br />
employment businesses could rely on a defence that they had<br />
no knowledge of tax evasion further down their supply chain -<br />
this legislation turns that on its head.<br />
DRAFT 2
Non-compliant payroll schemes and the 2019<br />
Loan Charge<br />
Following on nicely from the Criminal Finances Act, a further<br />
reason for contractor recruitment businesses to secure their<br />
supply chains is the risk from non -compliant payroll schemes.<br />
In April 2019, HMRC’s Loan Charge will see contractors who have<br />
used non-compliant schemes in the past receive retrospective<br />
tax demands going back as far as 1999.<br />
The most common of these contrived avoidance arrangements<br />
have been loan schemes which usually work by paying<br />
contractors a low salary with a high proportion of their pay as a<br />
loan.<br />
Employees NI<br />
12%<br />
Employers NI<br />
15%<br />
PAYE Tax<br />
21%<br />
Take Home Pay<br />
52%<br />
Tax Evasion<br />
Take Home<br />
90%<br />
Referring contractors to, or paying them through what HMRC<br />
views as a disguised remuneration scheme will put your business<br />
reputation and relationships at risk, so always carry out due<br />
diligence on any payroll intermediaries or umbrella companies<br />
you engage with.<br />
NI<br />
Tax<br />
Employment Intermediaries Reporting<br />
Under the Onshore Intermediaries Legislation 2014,<br />
employment businesses must return details of all workers they<br />
place with clients where they don’t operate PAYE on the<br />
workers’ payments.<br />
This includes workers engaged through umbrella companies or<br />
via their own limited company.<br />
This requirement under the legislation takes the form of a report<br />
sent to HMRC every 3 months.<br />
Agency Workers Regulations (AWR)<br />
Introduced in 2010, these regulations form part of UK labour law.<br />
They aim to prevent discrimination of people who work through<br />
employment agencies, by stating that agency workers should<br />
not be treated less favorably than their full-time counterparts<br />
who do the same work.<br />
The regulations cover things like pay rates, working time, holiday<br />
pay and benefits.<br />
DRAFT 2
Workplace pensions<br />
The government pension auto-enrolment initiative was rolled<br />
out between October 2012 and February 2018. Now all<br />
employers must enrol all “eligible jobholders” in an approved<br />
workplace pension scheme.<br />
The obligation lies with the employer for the purposes of a<br />
worker’s contract. In the absence of a contract the obligation to<br />
provide the pension lies with the party who is responsible for<br />
paying the worker.<br />
INSURANCE<br />
When you are focused on winning business, placing candidates<br />
and billing clients it can be easy be complacent. But, in business<br />
as in life, we should hope for the best but insure for the worst.<br />
Bear in mind, that if you employ your temp workers on PAYE, you<br />
will be responsible for ensuring that they have the appropriate<br />
insurances in place as per the terms of the assignment.<br />
Specialist insurers can provide suitable blanket arrangements, or<br />
if you engage your contractors through a compliant umbrella<br />
company, they should provide sufficient levels of cover.<br />
Public Liability<br />
Public Liability insurance covers against the risk of accidents or<br />
incidents which affect third parties, resulting in them making a<br />
claim.<br />
Examples include damage to property, injury to third party<br />
persons and legal costs. Even very minor incidents can result in<br />
massive third party claims, enough to put you out of business<br />
several times over, so it is worth considering this type of policy<br />
carefully. Most clients will insist that Public Liability cover is in<br />
place before any work takes place.<br />
Professional Indemnity<br />
Professional Indemnity (PI) insurance is to provide cover against<br />
possible claims of negligence. If an employee on your payroll<br />
makes an error in the performance of their duties or otherwise<br />
causes your client financial losses, they may put in a claim<br />
against you.<br />
PI covers any damages you have to pay out as a result of such a<br />
claim and also your legal costs. Aside from negligence, this type<br />
of insurance covers loss of data or documents, intellectual<br />
property breaches and cases of libel or defamation.<br />
Employers Liability<br />
You must get Employers’ Liability (EL) insurance of at least £5<br />
million as soon as you employ anyone.<br />
Employers are responsible for the health and safety of their<br />
employees while they are at work. If an employee is insured or<br />
becomes ill as a result of their work, they may try to claim<br />
compensation if they believe you are responsible.<br />
DRAFT 2
INFRASTRUCTURE<br />
Running a temp division or desk can be fast-paced and<br />
demanding. You need to ensure you have the infrastructure to<br />
cope with the challenge of managing often hundreds of<br />
contractors for multiple clients.<br />
Payroll and credit control<br />
One of the main differences between running a temp division<br />
compared to permanent placements is the logistics of payroll<br />
and credit control.<br />
Collecting and verifying timesheets, calculating tax and NI<br />
liabilities, holiday allowances, pension contributions, HMRC<br />
reporting and chasing payments all adds up to a substantial drain<br />
on time and resources.<br />
If there is a chance that these tasks will divert your attention from<br />
developing opportunities, sourcing candidates and building<br />
client relationships, you may want to consider an outsourced<br />
payroll bureau.<br />
Alternatively you may choose to engage your candidates<br />
through their own limited company, or through a recognised,<br />
legitimate umbrella company.<br />
In-house technology<br />
Investing in the right tech tools can help your temp desk run<br />
efficiently and smoothly. You can use multiple systems or a<br />
single recruitment software platform.<br />
Don’t automatically go with what you have used in the past, as<br />
some packages specialise in temp / contract recruitment.<br />
Shop around with your tech wishlist in mind:<br />
Back-office / payroll<br />
Online timesheets<br />
Job site integration aggregation tools<br />
Cloud telephony<br />
Email marketing platform<br />
Social media management<br />
DRAFT 2
Business Process Outsourcing - BPO<br />
We have already mentioned the benefits of outsourcing your<br />
contractor payroll to a payroll bureau, or engaging your temps<br />
through a reputable umbrella company.<br />
There are also numerous other essential business functions that<br />
can be contracted out to specialist third parties.<br />
Depending on your existing infrastructure and in-house skill and<br />
capacity, outsourcing some or all of the following tasks to an<br />
external provider can offer considerable ROI:<br />
Payroll funding<br />
Employment compliance - such as Right to Work, DRB and<br />
Employment Reference checks<br />
Pension Auto-enrolment<br />
Marketing support<br />
Employment, HR and tax advice<br />
DRAFT 2
02392 883300 | www.liquidfriday.co.uk | hello@liquidfriday.co.uk<br />
DRAFT 2