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Travel and Subsistence - The Real Impact

By now I am pretty sure that everyone within the recruitment industry knows about the Travel & Subsistence (T&S) legislation that came into effect on the 6th of April.

The question is, how much have you been told about the actual implications set to hit the industry? How open have your umbrella suppliers been with you and do you have contingency plans if the changes start to affect your business? The latest series of legislation changes potentially brings with it a significant loss of profit through agencies having to run their own PAYE books. This has given rise to the number of agencies and end clients turning to Business Process Outsourcing (BPO), could this be the solution that the recruitment industry needs?

Most umbrella companies have provided a truly fantastic service to the recruitment industry but the honest truth is they simply cannot supply the same service moving forward.

It doesn’t matter what is said about offering your contractors employment benefits, the simple truth is that the majority of contractors sign up to umbrella companies for one reason and one reason only -  to offset their expenses against tax and national insurance.

We hear statistics that 50 percent of contractors don’t claim expenses and therefore won't be affected by these changes. I will counter that with the fact that 100 percent of contractors sign up to umbrellas with the intention to claim expenses, 50 percent don’t through forgetfulness or complicated expense systems.

With that in mind, I have heard umbrella companies telling their agencies that contractors will continue to sign up with umbrella companies because of the employment benefits they receive. If I am not mistaken, don’t agencies already offer these same employment benefits? So if that is the case why would anyone choose to pay £28-£30 per week to an umbrella employer?

The simple answer here is they won’t!

This leaves recruitment businesses with a decision to make. Do you continue to rely on umbrella companies? There are benefits I’m not disputing that. If you are getting a commercial rebate for referring your contractors to an umbrella company, then you might be inclined to keep using their service. Umbrella companies also cover the pension contributions as the contractors are “their” employees. This is also a commercial incentive but is it enough to cover the potential loss of your full margin should your contractors go to a competitor who runs a PAYE book?

We have always worked in a candidate lead market. Candidates decide which agency they choose to work with based on the values of that agency and their ability to find them the best role. Loyalty isn’t necessarily guaranteed upon those factors.  If you were being forced to have your payments run by an umbrella company at a cost of £1500 per year versus working with an agency that will run a free PAYE payroll which would you choose?

The stark reality is that agencies need to start preparing for a life of larger than usual PAYE books.  Some umbrella companies are talking about offering lower margin services, this is great and shows a willingness to adapt with their agencies. It will however only work in some sectors and job roles depending on the price they charge. Now more than ever agencies need to examine their businesses and look at what the impact and cost would be to run their contracting books in-house. It is likely that it will cost you more as you will need to factor in the cost of employing more staff to run your payroll, increase the software licences that are used for your back office and also an increase in employment costs for an additional PAYE base.  Before you start heading for the exit door there are are solutions you can look at.

As I previously stated, some umbrellas are running low cost margins which could convince contractors that it would be worth it to sign up. Ensure that you are working with companies that are willing to adapt themselves to the changes just as you are. Don’t accept the line of “business as usual” because it’s not.

This will only solve a portion of your issues certainly not all of it.  The other solution is outsourcing parts of your business to a specialist.  At Engage we have seen outsourcing work to great effect even before these changes to T&S were drawn up. Businesses have outsourced their entire back office such as payroll, compliance and even registrations saving hundreds of thousands of pounds. With the funds saved on back office costs these businesses have gone on to invest more into their sales staff which ultimately leads to more placements and therefore an increase in profit.

If you would like more information on how to minimise the costs in your back office and see how that could shape your business for the impact of legislation changes please do get in touch with me, Drey Francis.

07525 966029