Desperate times call for desperate measures – BEWARE!

Like any other industry the Industrial Temporary Labour market has come under considerable pressure as Client companies reduce the workforce in an effort to respond to the Economic Slowdown. The labour market is contracting and unemployment is set to rise even further during the coming months.

It is time for us all to tighten our belts, the margins available to recruitment businesses have been falling steadily over the last five years; that is until now.  Margins now being offered by some agencies are quite frankly suicidal and I would like to offer for consideration the phrase: “if it sounds too good to be true, it probably is”.

The use of Umbrella Companies and/or Travel and Subsistence payment schemes has been around for many years.  HMRC are uncomfortable with the various schemes and recently notified a crack down on schemes that are abusing the HMRC dispensations.

These schemes operate on the basis of Salary Sacrifice.  HMRC raise the question on their website http:/www.hmrc.gov.uk/specialist/sal-sac-question-and-answers.htm “Can a salary Sacrifice take pay below Minimum Wage rates?”  Their answer is a very clear and emphatic NO.  Benefits provided in return for a reduction of cash pay (a salary sacrifice) cannot take pay below NMW rates (the only exception is the benefit of accommodation provided by the Employer).

This, however, is exactly what many agencies and a few Umbrella Companies are doing. They will tell you that the workers are “employees” and that they are better off.  Indeed, to give a typical but conservative example based on minimum wage pay rate, the worker is better off to the tune of around £5/week, the agency/composite better off by £40/week and the treasury down by £45/week.

Most Umbrella Companies using these dispensations legitimately set a lower limit of pay rates between £7/hr and £7.50/hr.

Agencies offering low margins and using these schemes are depriving the Treasury of much needed revenue at a time when the country is on its uppers. Recent changes to legislation have toughened up the powers of HMRC minimum wage investigators and the Gangmasters’ Licensing Authority (GLA)  have upgraded non compliance of Minimum Wage regulations and failure to correctly account for Tax and NI to a critical non-compliance resulting in Licence revocation. If you use a labour provider who does not hold a GLA licence then you could be fined also.

Interestingly, recent powers adopted by HMRC to recover Tax and NI underpayment from third parties are making Agencies and potentially their Clients liable. With the impact of these schemes amounting to several hundreds of thousand pounds per week it won’t be long before HMRC move to stop this illegal activity and recover some of the lost revenue.

Agencies going broke may leave Clients with significant ongoing liabilities.

 Many of the major supermarket chains are also taking a keen interest in this to ensure that their suppliers don’t use labour providers offering these schemes; reputations are easily tarnished on the high street and the supermarkets take no prisoners!

Ask your labour provider for a breakdown of the invoice rate and the worker’s payslip.  If they have nothing to hide they will gladly give you the detail.

Kind regards
Jon Derbyshire

Head Office

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