Following the end of the consultation period yesterday [4 February] on the government’s proposals to clamp down on false self-employment, trade bodies and others familiar with the issue have told Recruiter of their continuing concerns. 

The representative of one recruitment industry trade body describes the government’s proposals as “unreasonable”.

The government intends to introduce legislation in April because it argues that many workers working through employment intermediaries, such as payroll companies, are not actually self-employed but are using a loophole in the legislation, which allows the worker to send someone else to do their job. 

In reality the government says this happens only rarely, if at all. However, the result of this clause, says the government, is that many workers are falsely classed as self-employed, with resultant losses of tax and National Insurance Contributions (NICs) to the Exchequer. Such workers also lose employment rights and rights to statutory payments.

Sam Hurley, head of external relations at the Association of Professional Staffing Companies (APSCo), tells Recruiter: “The proposals would mean that recruitment agencies would be liable for the tax and NI of workers unless they can show the worker is genuinely self-employed.”

However, she adds: “The recruitment firm will have little or no visibility or control over what the intermediary company is doing, yet they are being held responsible for the workers’ tax and NI – that is unreasonable.”

Hurley says APSCo has urged the government to include a defence for recruitment agencies within the legislation. This would allow them to avoid liability for the workers’ tax and NI if, for example the intermediary, say a payroll company, gave the agency false information about a worker’s payment arrangements.

Matthew Brown, managing director of giant group, tells Recruiter that the legislation as proposed by the government “will have a huge impact” on agencies. He says that agencies will need to be very strict in selecting intermediaries for their preferred supplier lists (PSLs). Otherwise, he says “the tax and NI will come back to them”. 

Brown adds: “It is very unlikely that agencies will want to take on any worker being paid as self-employed in the supply chain, because it will be very difficult to know whether that worker is self-employed or not, and therefore they will not want to take the tax and NI risk of providing these workers.” 

Tom Hadley, director of policy and professional Services at the Recruitment & Employment Confederation (REC), warns that the proposals if unchanged could have a negative impact on jobs in the short term as a result of workers who were previously classed as self-employed having to be paid as PAYE workers. “You might have a construction firm who says ‘I will only employ two people rather than three because I have to pay them as PAYE and not self-employed and this adds to 20% to my costs’,” he says. 

Hadley says that the REC would like to see “an element of liability” for workers’ tax and NI on the end-user client, as at the moment “all the responsibility” is on the agency. However, he adds, “it is going to be difficult to persuade HMRC to budge”.

Graham Jenner, director at NoPalaver, a provider of accounting services to contractors, says that while the proposals will bring in more NI to the Exchequer, “contractors will suffer from lower net pay”. And he continues that while one of the reasons given by the government for cracking down on false self-employment was contractors being denied rights such as holiday pay, “they will not result in greater employment protection for the workers who are affected”.

Matthew Huddleston, MD of umbrella solutions provider FPS Group, tells Recruiter that the proposed legislation is good news for ‘true’ umbrellas, whose workers are not caught by the legislation. 

However, he warns that with the government committed to enacting this legislation by April 2014, agencies will have “little time to react to the finalised legislation”. 

“They should be reviewing their arrangements now to ensure that contractors are being employed and subject to PAYE and NI deductions,” he says.

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