Could a PSL benefit your business?

Transcription

1 Could a PSL benefit your business?

2 2 Introduction Go back a few years, and most recruitment directors would have reacted to the notion of a PSL with a nonchalant shrug of the shoulders. Until relatively recently, many staffing businesses were largely oblivious to the financial and legal risk that operating without a PSL left them open to, and unaware of the power of a PSL to mitigate that risk. Other agencies realised the need for a PSL, but thought the whole process of constructing one would be too time consuming. Fast forward to the present day, however, and legislative changes and market trends mean a growing number of agencies are embracing PSLs and finding that doing so can bring genuine business benefits. Indeed, an agency that doesn t have a PSL in place may well find it is now the exception rather than the rule. There is a danger that such an agency will not be working as smartly or efficiently as some of its competitors, and may be leaving itself open to risks. In this informative guide, we examine the key considerations and potential advantages for recruitment agencies looking to sure they have a robust PSL in place.

3 3 The basics of PSLs At its most fundamental level, a preferred supplier list is a means of protecting a recruitment agency s business. Creating a robust, effective PSL will equip an agency with a valuable understanding of how its supply chain works. Specifically, it enables the agency to ensure that its providers are: Compliant; Financially robust; and Genuine employers of record for flexible workers. The process of devising and implementing a PSL involves spending valuable time carrying out due diligence into your current and potential providers. However, when executed properly, a PSL allows an agency to embed a pro-active rather than reactive approach to supply-chain management. Taking control of a previously disorganised and even chaotic relationship means the agency s finances and reputation can be safeguarded to an extent that was previously unattainable.

4 4 Why are more and more agencies putting PSLs in place? There are several factors at play when it comes to the increasing use of PSLs by recruitment agencies. These include: 1. Legislative changes Auto-enrolment Pension auto-enrolment is arguably the key driver in the growing usage of PSLs at the time of writing. Naturally, agencies do not want to be dealing with 80 or 90 providers with different staging dates, given the ongoing administrative headache this would cause. Even more significantly, auto-enrolment means that, now more than ever, an agency has to be certain that any given provider is the true employer of record for its contractors in the eyes of the law. If a provider cannot demonstrate that it is the employer of record for a contractor or flexible worker, the agency or its client could be left to pick up the tab for that worker s pension. Carrying out due diligence into the true nature of the employment contracts offered by providers a key element of the PSL implementation process is therefore arguably more important for agencies than ever before. Auto-enrolment means end clients are taking a greater interest in the pension and contractual arrangements of agencies and their suppliers. An agency therefore needs to be able to demonstrate that it has a solid grasp of its providers position and liability with regard to autoenrolment. See page 10 (Do your providers offer contractors a true contract of employment?) for more information. AWR The introduction of the Agency Worker Regulations (AWR) in October 2011 convinced many recruitment agencies to draw up a PSL. In the post-awr environment, in which issues such as compliance and the sharing of information between agencies and providers are more important than ever, having a PSL in place can reduce the administrative burden placed on an agency. Quite simply, working with seven rather than 70 suppliers makes life easier for the agency on many administrative and technical levels.

5 5 Why are more and more agencies putting PSLs in place? 2. New focus on risk mitigation Financial The umbrella and professional employment organisation (PEO) market has come a long way in recent years. The creation and evolution of the Freelancer and Contractor Services Association (FCSA), for example, has marked a step change in standards and compliance. However, you don t have to look too far back to find examples of providers who, through poor management and bad financial practices, have gone to the wall, leaving recruiters and their end clients carrying the can. On many such occasions, the recruitment agency has effectively been forced to pay its contractors wages twice. Carrying out comprehensive financial audits into providers a crucial element of creating a robust PSL significantly reduces the likelihood that an agency will find itself in such a scenario. Reputational At a time of heightened media scrutiny of unethical offshore umbrella companies, agencies that work with such organisations are themselves at risk of becoming embroiled in controversy. Unfair as it may seem, the perception of guilt through association is a very real danger for agencies working with umbrellas at the less reputable end of the market. The process of constructing a robust PSL will enable you to steer clear of offshore providers, thereby safeguarding your reputation in the event that the media s gaze fixes on you and your supply chain.

6 6 Why are more and more agencies putting PSLs in place? 3. Greater awareness of commercial benefits Smoother systems Drawing up a PSL made up of a limited number of providers can enable an agency to develop more efficient ways of working, both from an administrative and a procedural perspective. As your providers become trusted partners, slick and efficient systems and procedures evolve, delivering time-saving benefits for you and your clients. Examples of areas where efficiencies can be achieved include invoicing, timesheets, payments processing and contracts. Corporate values As everyone working in recruitment knows, end clients are increasingly interested in an agency s corporate governance policies and corporate social responsibility (CSR) credentials. If you meet the client s criteria, it naturally follows that they will be keen to find out if your various partners in the supply chain meet the same high standards. A PSL will enable you to monitor the CSR activities and track record of your providers, ensuring that their corporate values match your own. Clarity If you don t have a PSL in place, who within the agency is currently making decisions on who you work with? Are individuals making judgements based solely on which provider offers the highest referral incentive? Are compliance and reputation taken into account? It may be that supplier procurement has not been assigned to one department or individual. The process of drawing up a PSL will allow an agency to have a constructive debate about its priorities when selecting providers.

7 7 What should I consider when drawing up a PSL? So, you ve decided to draw up and implement a PSL. Here are six questions that we recommend you bear in mind during the process: 1. How financially stable are the providers on your list? Carrying out in-depth research into a provider before adding it to your PSL should be fairly straightforward, and the time investment is well worth it in the long run. If the organisation has nothing to hide, it should be forthcoming with the information in any case. Ask your providers how financially robust they are, then back this up with a quick check of their latest financial results. Companies House is a good place to start. Better still, have your FD conduct a full credit check.

8 8 What should I consider when drawing up a PSL? 2. Are the providers on your list compliant and ethical? Although leading industry names such as Parasol are working hard with HMRC to stamp out unethical practices in the flexible workforce management sector, they unfortunately still exist. The truth is that if your provider is partaking in such practices, your business is at risk. Are your providers making wild claims about expenses dispensations? Do they make unrealistic statements about how much pay your contractors can take home? Remember: expenses dispensations are administrative tools, not something to be used to mislead contractors and leave your business vulnerable. Some companies will offer a free service for contractors, perhaps at the same time as offering you a referral incentive. Ask yourself where the money is coming from to fund this. Some providers will also push your contractors into a one-man umbrella model which allows contractors to take advantage of the flat rate VAT scheme. The financial advantages aren t always passed on to the contractor, however, and the provider may be abusing the scheme for its own financial gain. Finally, don t forget that, due to the nature of the recruitment industry, your providers get to see plenty of your data. Make sure you know what they are doing with your valuable information, and that they are keeping it secure.

9 9 What should I consider when drawing up a PSL? 3. How are your providers structured? It s no secret that some recruitment agencies run their own umbrella services. Some of these companies will request that you remove any non-solicitation clauses from your contract with them, so they can pass your contractors details on to the recruiter parent company not something you want to see when it s time to renew your contract with your client and the other agency undercuts you. It s also worth looking into whether any of your providers are wholly or partly based overseas. As we have seen recently, the government (and indeed the media) is taking an increasingly hard line on aggressive tax avoidance. The coalition is determined to clamp down on the use of offshore schemes and, in some cases, apply retrospective taxation. An unscrupulous umbrella company could disappear at the click of George Osborne s fingers, leaving you with a hefty bill for the unpaid tax of your contractors. When thinking of the structure of your providers, it s also worth keeping in mind the Managed Service Company (MSC) legislation. Under the legislation, which was introduced in 2007, agencies and their directors can be liable for the tax debt of their contractors in some circumstances. Therefore, it s vital that you establish if any of the providers on your PSL could be putting you at risk.

10 10 What should I consider when drawing up a PSL? 4. Do your providers offer contractors a true contract of employment? Who takes sole responsibility for your contractors employment rights? In other words, who will fight your if there is a contractual dispute or employment tribunal? What actually happens when your contractors or temporary workers require HR support, or when a legal issue needs to be addressed? This is where professional employment organisations such as Parasol step in with robust, overarching employment contracts that are backed by case law. With this in place, your contractors are legally the employee of your umbrella company. If a dispute does go to tribunal, you and your end client have no liability. There is therefore no danger that your reputation could be tarnished. The provider is also responsible for ensuring that all relevant insurance policies for the contractor, such as professional indemnity insurance or public liability insurance, are in place. If there is no overarching contract of employment in place, it becomes extremely difficult to prove that your provider is the contractor s legal employer. This in turn makes it difficult to legally allow employees to claim tax relief on their expenses. Does the provider work on a three-way contract basis? If so, this could significantly increase your exposure to risk. Three-way contracts mean that, in the event of a dispute involving your contractor, it s again very difficult to prove who the employer is. By ensuring that the single contract is between yourself and your provider, and that the provider has an overarching contract of employment with the temporary worker, there is no doubt in the eyes of the law. Responsibility lies with the provider, as it should.

11 11 What should I consider when drawing up a PSL? 5. Are you at risk from the Bribery Act? The practice of offering incentives in this market is as old as the market itself. However, under the Bribery Act 2011, if a provider offers you an incentive and you accept, you could be held legally accountable from both a corporate and personal perspective. The maximum punishment for getting this wrong is 12 years in prison. Having a robust PSL in place, along with a transparent rationale for selecting your providers, will enable you to demonstrate that there has been no undue influence in the event of an investigation. 6. Do your providers credentials stand up? As noted earlier, there have been some high-profile failures of umbrella companies. Many had the backing of industry organisations, and proudly displayed kite marks on their websites and in corporate literature. In these circumstances, the accreditation ultimately counted for nothing. There is only one independent accreditation body that has the backing of HMRC, PCG, APSCo and the CBI, and that is the Freelancer and Contractor Services Association (FCSA). The FCSA has introduced a strict and transparent code of conduct for its members, which includes rules on financial stability. The code is backed by an open-book policy and an annual independent audit by one of the Big Four accountancy firms. The results of the audit are presented to HMRC, making it impossible for bad practices to be swept under the carpet.

12 12 Next steps

13 13 Next steps Having a PSL in place is, of course, only the first step. The key is to ensure it becomes embedded in your organisation. This requires buy-in from director level downwards without this any PSL will not be implemented properly. Contact Parasol on agency@parasolgroup.co.uk or for an initial, noobligation consultation on constructing a robust PSL that protects you from risk and benefits your business.