Monthly Archives: February 2017

Sustainable Decision Making

2016 was an eventful year all-round, specifically for the UK and the UK temporary work sector. Despite the challenges faced, ESCG and its clients have risen above 2016 and are set to move well beyond 2017. We are taking this opportunity to highlight the milestones achieved thus far and demonstrate how the strategies our Umbrella Company clients put into effect have proved, not only fruitful in the short-term, but sustainable in the long-term as well.

Independent Legal Advice
Whenever there is an upcoming legislative change, our clients’ first call to action is seeking independent advice from trusted legal experts within the industry. While there are several associations and organisations that provide ‘blanket’ advice to their members, our clients prefer to obtain specific advice tailored to their specific business model from their own trusted authorities on all matters, despite the additional cost.

Consistency and Continuity
Over the last 10 years, our Employment Business clients (often referred to as Umbrella Companies) have engaged the same legal advisors on all related matters. As such, the advisors have developed an in-depth knowledge and understanding of our clients’ businesses, processes and policies. This, coupled with their tax and employment law expertise, results in objective and practical assessment with no conflict of interest. Our clients are therefore able to expedite the design and implementation of any new changes required efficiently and effectively.

Embrace Change, Stay True
This evolution of one’s business, in line with the ever-changing business environment, can be successfully realised by embracing change and holding true to one’s core values and principles. Having established clear business goals supported by a robust business model is a key factor. Simply ebbing and flowing with the general business tides by making short-term adjustments and workarounds to keep afloat is not a sustainable strategy.

Not all Umbrellas are Equal
Umbrella companies have had more than their fair share of challenges over the last decade, yet our clients have not changed their underlying business model since inception. Their goals are always clear: leverage their bespoke systems to deliver exceptional service to temporary workers and agency partners, supporting them with all their needs in a fully compliant manner. In a nutshell this means taking on all employer responsibilities when engaging temporary workers and providing suitable workers to agencies to place on assignment; followed by invoicing appropriately for services performed and taking a margin on such invoiced work. Our clients have always been fully transparent about this. As new rules and regulations appear, some Umbrellas have made drastic changes to prices, some adopting completely new business models to capitalise on the current form of the law with little attention given to the substance.  Ours, have not.

Example 1 – Outsourced Payroll
Some providers openly charge a ‘fixed fee’ per timesheet or per week, a concept that was never adopted by our clients as it is unclear to whom this fee is being charged. Justifying charges such as ‘fee per unit’ is also challenging as it is akin to the pricing method of an outsourced payroll provider, which is not congruent with the values of an employment business. This incongruence materialises in different forms ranging from poor customer service to subtle acts of non-compliance as the focus is on processing payments instead of providing services.

Example 2 – Salary Sacrifice
Similarly, operating a salary sacrifice scheme was never a considered option due to its inherent contrived nature, and unsurprisingly, the government has legislated that from April 2017 employers operating such schemes will no longer be able to offer any tax or National Insurance advantages, apart from a few exceptions.

Example 3 – Deemed Employer & Flat Rate Vat
Arguably, the most significant deviation away from the spirit of the law (and from the Umbrella model in general) was the introduction of schemes that require temporary workers to establish and manage their own Limited Company solely to circumvent the new SDC legislation. Furthermore, providers of such schemes were not always disclosing the fact that they were exploiting the Flat Rate Vat rules for their own gain (gains which could have been realised for the worker instead).

Offering such a model was frowned upon by our clients as doing so would compromise their integrity by encouraging workers whose circumstances were not necessarily suitable for operating a limited company, to now do so purely to skirt a particular piece of legislation. The government, only a year later, has already introduced a new 16.5% VAT rate from April 2017 for businesses with limited costs, such as labour-only businesses, thus effectively shutting down those schemes and bringing the integrity of those providing such schemes to question.

Collaborate, Educate, Support
Such legislative changes as above are welcomed by our clients as their business models were designed to stand the tests of time. More importantly, their approach to decision making has always been collaborative and supportive; adopted to ensure that any actions pursued will result in the best interests of all parties concerned. This approach is essential, because no degree of integrity or moral high-ground is of value if what you are providing cannot be effectively used by those receiving it. Input and feedback from all parties, specifically recruitment agencies and business partners, is therefore critical to our clients’ success. Only after understanding the parameters and constraints that agencies are bound by, are our Umbrella Company clients able to develop solutions that overcome such hurdles.

A Team Effort – Upcoming IR35 Changes
The recent change to the IR35 legislation affecting public sector bodies brings to light a fitting example of such collaboration and support. A few of our clients’ agency partners, well ahead of the game, proactively sought guidance from our clients on how best to proceed with this change as a large proportion of their candidates using limited companies are to be affected. Our clients confirmed the exact changes and the impact to all parties before they together drafted a plan of action, communicating the changes and the impacts to the contractors, and outlining the specific reasons why the contractors are being encouraged to engage with our Umbrella Company clients from April 2017.

Our Umbrella Company clients then committed resources to ensuring that any queries raised by the affected workers were promptly resolved and that any additional information required to help  make an informed decision was provided. They subsequently rolled this plan out to all their other agency partners. The bottom line is that our clients were there to work with and support their agency partners to adequately address the needs of the affected contractors by designing and implementing specific processes.

Value Added Services
Another form of support is being able to offer value-added services over and above what the law dictates as a minimum. This often comes at the expense of the Umbrella Companies themselves but benefit all parties concerned. One such example is the introduction of an Employee Benefits Scheme that our Umbrella Company clients have made available to their employees which provide access to a plethora of online and in-store discounts, vouchers and cash-back rewards that effectively increase the take home pay of workers without a billing rate increase.

Tying It All Together
A final case in point that brings together all the points addressed here occurred in early 2016 when the new Supervision, Direction and Control changes were soon to become effective. There was much hype around this change, with many marking that point as the start of the demise of Umbrella companies as we knew them.

This was not the case for our Umbrella clients. Acting upon the advice received after discussions with their advisors, our Umbrella clients embraced this change without entertaining contrived alternatives. They collaborated with their agency partners to develop policies and processes that incorporated the changes in an efficient manner. This was accomplished with less than sufficient HMRC guidance in a period of much uncertainty and unknown.

Systems were then updated to facilitate SDC assessments and fully compliant expense claim reimbursements. The changes were rolled out and communicated in a timely manner resulting in a smooth transition with minimal disruption for both their agency partners and temporary workers. Further value was added with our clients’ Employee Benefits Scheme, competitions, promotions and improved systems and mobile app.

Beyond April 2017

It is safe to presume that the reason for many of the April 2017 changes is to reduce what the Government perceives as unfair advantages to certain types of workers within both the public and private sector. With the increase in the number of contrived business models and operations within the temporary work sector in the past year, this comes as no surprise. Most of these newer structures have been established outside the spirit of the law and HMRC has called these out.

ESCG and our clients have always maintained a sustainable, long-term approach to our strategic decisions and the positive results of such decisions are now being realised. While some of the proposed changes will heavily affect the industry, our clients look forward to the new tax year as their offerings and solutions are already in line with the changes.