Draft 2

LAUNCHING A TEMP DIVISION
IN THE UK
A guide for recruitment business leaders
DRAFT 2

CONTENTS
Introduction
Planning and opportunities
Top 5 sectors for high growth in 2018
and beyond
Your market
Marketing
Legislation and Compliance
IR35
Criminal Finances Act
Non-compliant payroll schemes and
the 2019 Loan Charge
Employment Intermediaries Reporting
Agency Workers Regulations (AWR)
Workplace pensions
Insurance
Public Liability
Professional Indemnity
Employers Liability
Infrastructure
Payroll and credit control
In-house technology
Business Process Outsourcing - BPO
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INTRODUCTION
Recruitment is a challenging and rewarding industry which is
showing fantastic signs of growth.
The thought behind this guide is to empower UK recruitment
leaders who may be considering expanding their business to
include a temporary / contract division.
In particular we will look at the specific legislative and
compliance challenges faced by the temporary recruitment
sector, so that you can evaluate threats and mitigate risk.
While this is by no means a comprehensive blueprint for success,
we will cover the key considerations to help you realise this
exciting part of your growth strategy.
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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 division will operate in and your areas of specialism, which
may either mean sticking with what you know or diversifying into
other sectors.
Top 5 sectors for high growth in 2018 and beyond
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Construction - with a huge skills shortage in UK
construction, the opportunities for strong agency
growth to fill those roles is very high.
Healthcare - the challenges and uncertainty caused
by IR35 in the public sector seems to be levelling
out, with demand for health professionals once
again growing at a steady pace.
Manufacturing - Despite the uncertainty Brexit
brings, it also presents real opportunities for
exporters, which bodes well for the manufacturing
sector in the next 2-3 years.
Engineering - One of the top two growth sectors
during 2018, although manufacturing and
healthcare are starting to close the gap.
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IT and Technology - Top of the list, with clients in
these sectors reporting healthy growth figures
year on year, with placement fees and margins of
18 - 22%.
Your market
It is important to establish that there is a buoyant contracting
market for your new business arm to grow and thrive in.
In researching your market, you should take into account the
employment activities and dominant sectors of your target
client market, the availability of candidates in your niche 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.
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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
Your messaging
What do you want to say, and how?
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?
LEGISLATION AND COMPLIANCE
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 particular regulations for your
sector, for example the CIS scheme if you are operating in the
construction industry.
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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.
Up until April 2017, it was the responsibility of the individual
limited company director to determine the IR35 status of their
contract. Then the rules in the public sector changed.
Under the Off-payroll Working Rules in the public sector, IR35 is
determined by the public sector 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.
It was announced in the 2018 Budget that from April 2020, these
rules will be extended to the private sector. The government
have confirmed that these changes in the private sector will only
apply to large and medium sized companies (Companies Act
definitions) and there will be further consultation on the
operational detail.
IR35 is a notoriously complex area, but there is a wealth of help
and advice to understand IR35 at Liquid Friday’s IR35 hub
Criminal Finances Act
The Criminal Finances Act came into effect on 30th September
2017 and effectively makes 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 new 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.
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. 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.
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Non-compliant payroll schemes and the 2019
Loan Charge
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 will see contractors who have
used non-compliant schemes in the past receive retrospective
tax demands going back as far as 1999.
The most common of these contrived avoidance arrangements
have been loan schemes which usually work by paying
contractors a low salary with a high proportion of their pay as a
loan.
Employees NI
12%
Employers NI
15%
PAYE Tax
21%
Take Home Pay
52%
Tax Evasion
Take Home
90%
Referring contractors to, or paying them through what HMRC
views as a disguised remuneration scheme will put your business
reputation and relationships at risk, so always carry out due
diligence on any payroll intermediaries or umbrella companies
you engage with.
NI
Tax
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.
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 favorably than their full-time counterparts
who do the same work.
The regulations cover things like pay rates, working time, holiday
pay and benefits.
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Workplace pensions
The government pension auto-enrolment initiative was rolled
out between October 2012 and February 2018. Now all
employers must enrol 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.
INSURANCE
When you are focused on winning business, placing candidates
and billing clients it can be easy be complacent. But, in business
as in life, we should hope for the best but insure for the worst.
Bear in mind, that if you employ your temp workers on PAYE, you
will be responsible for ensuring that they have the appropriate
insurances in place as per the terms of the assignment.
Specialist insurers can provide suitable blanket arrangements, or
if you engage your contractors through a compliant umbrella
company, they should provide sufficient levels of cover.
Public Liability
Public Liability insurance covers against the risk of accidents or
incidents which affect third parties, resulting in them making a
claim.
Examples include damage to property, injury to third party
persons and legal costs. Even very minor incidents can result in
massive third party claims, enough to put you out of business
several times over, so it is worth considering this type of policy
carefully. Most clients will insist that Public Liability cover is in
place before any work takes place.
Professional Indemnity
Professional Indemnity (PI) insurance is to provide cover against
possible claims of negligence. If an employee on your payroll
makes an error in the performance of their duties or otherwise
causes your client financial losses, they may put in a claim
against you.
PI covers any damages you have to pay out as a result of such a
claim and also your legal costs. Aside from negligence, this type
of insurance covers loss of data or documents, intellectual
property breaches and cases of libel or defamation.
Employers Liability
You must get Employers’ Liability (EL) insurance of at least £5
million as soon as you employ anyone.
Employers are responsible for the health and safety of their
employees while they are at work. If an employee is insured or
becomes ill as a result of their work, they may try to claim
compensation if they believe you are responsible.
DRAFT 2

INFRASTRUCTURE
Running a temp division or desk can be fast-paced and
demanding. You need to ensure you have the infrastructure to
cope with the challenge of managing often hundreds of
contractors for multiple clients.
Payroll and credit control
One of the main differences between running a temp division
compared to permanent placements is the logistics of payroll
and credit control.
Collecting and verifying timesheets, calculating tax and NI
liabilities, holiday allowances, pension contributions, HMRC
reporting and chasing payments all adds up to a substantial drain
on time and resources.
If there is a chance that these tasks will divert your attention from
developing opportunities, sourcing candidates and building
client relationships, you may want to consider an outsourced
payroll bureau.
Alternatively you may choose to engage your candidates
through their own limited company, or through a recognised,
legitimate umbrella company.
In-house technology
Investing in the right tech tools can help your temp desk run
efficiently and smoothly. You can use multiple systems or a
single recruitment software platform.
Don’t automatically go with what you have used in the past, as
some packages specialise in temp / contract recruitment.
Shop around with your tech wishlist in mind:
Back-office / payroll
Online timesheets
Job site integration aggregation tools
Cloud telephony
Email marketing platform
Social media management
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Business Process Outsourcing - BPO
We have already mentioned the benefits of outsourcing your
contractor payroll to a payroll bureau, or engaging your temps
through a reputable umbrella company.
There are also numerous other essential business functions that
can be contracted out to specialist third parties.
Depending on your existing infrastructure and in-house skill and
capacity, outsourcing some or all of the following tasks to an
external provider can offer considerable ROI:
Payroll funding
Employment compliance - such as Right to Work, DRB and
Employment Reference checks
Pension Auto-enrolment
Marketing support
Employment, HR and tax advice
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02392 883300 | www.liquidfriday.co.uk | hello@liquidfriday.co.uk
DRAFT 2