The Future of Recruitment and Umbrella Companies Post 2020
The coming months will present many challenges for the wider economy. Yet industries such as education, health, IT, and social care will be vital in providing support in the aftermath of the virus. A flexible workforce will remain important and recruitment agencies will be key to the recovery. However, even before agencies have overcome the worst of the pandemic, they will still be faced with challenges that existed before Covid-19.
Although the major tax reforms were postponed due to the coronavirus, IR35 has been rescheduled to take effect from April 2021. With almost 9 in 10 contractors expected to fall inside IR35 and contractors faced with a 25% loss in net income, recruitment agencies must work closely with clients to manage risk and spread the cost through the supply chain, whilst maintaining candidate engagement.
A new points-based immigration system, implemented on 1st January 2021, will change ways of working for permanent and temporary recruitment firms alike. Recruiters will likely face difficulties placing UK candidates into EU territories and vice versa, with costs and admin burdens expected to rise. Contractors from Europe and beyond may be dissuaded from available work in Britain due to red tape, growing hostility towards foreign nationals and the reduced financial gains of placements abroad. Recruiters will need to work harder to establish key relationships with European networks and help clients create a welcome employer brand.
Changing Candidate Relationships
During a time of increasing skills shortages across industries, candidate care will become ever more vital to the recruitment process. Contractor success is key to recruitment agency success: happy contractors who feel that their recruiters genuinely care about them, and will support them when needed, are much more effective in their placements. Contractors who are properly taken care of will remain with their agency, refer their network and help facilitate a better recruiter/candidate relationship, resulting in fewer complaints and a smoother recruitment process.
In that context, umbrellas will continue to play an important role, providing valuable efficiencies to the recruitment supply chain by working alongside them and assisting as they navigate the many challenges that lie ahead.
The Vital Relationship Between Recruitment and Umbrella Companies
The coronavirus and its subsequent challenges have further cemented the value of close working relationships between staffing agencies and umbrellas companies, as well as highlighting the importance of having a reliable PSL.
In-house management of HR and payroll is inefficient and expensive. The lack of an independent payroll provider can result in:
- Higher charge-out rates to clients
- Lower margins for agencies
- Lower rates for contractors
However, using an umbrella supplier is only beneficial if you partner with the right company. As an industry, umbrella providers must continuously review operating models to ensure an optimal fit for everyone in the supply chain.
Payroll Predictions: How the Umbrella Market Will Look in 2021
1. Umbrella Employment
The standard Umbrella Solution will maintain its popularity and relevance, however, we expect more pressure on non-compliant companies, as contractors become more aware of incorrect processes, pay discrepancies and non-compliant treatment of their pay. Recruitment agencies will need to review their supply chain carefully to ensure that their partners share their values and ethics, with contractors insisting that they will not work with agencies who partner with non-compliant partners. COVID-19 has shown the importance of a reliable supply chain, with agencies being held responsible by candidates for the supplier’s misconduct.
Under umbrella employment, the agency sends a fixed rate to the umbrella company, which is used to fund the contractor’s salary and cover all employment costs.
In the past, this model has been subject to misuse: agencies and umbrellas have created negative PR by attempting to pass off the umbrella rate as the contractor’s pay rate, creating the false impression that the contractor is paying their own employment costs. However, the new Key Information Documents, providing a full take-home pay illustration, should help to stamp out bad practice in this area.
For recruitment agencies, the classic model offers many benefits: simplicity, fixed and unambiguous total cost (meaning consultants can easily work towards the required margin) and less work for in-house finance and payroll departments. Transparent umbrella-recruiter is beneficial for contractors and agencies alike, adding value and removing pain points all around. Check out Generate Umbrella.
2. Umbrella Employment – Fixed PAYE Rate
Increasingly, recruitment agencies wish to offer fixed PAYE rates to their contractors, without the internal admin burden of running their own payroll and HR functions.
The Professional Employment Organisation (PEO) model delivers a fixed pay rate that keeps things as simple as possible for the contractor. Challenges with this model include the accuracy of margin forecasting for agencies, particularly due to the uncertainties around shifting pension costs. Daily employer costs can also vary depending on days worked, due to the fixed nature of the employer’s national insurance allowance, making budgeting more difficult.
Arrangements between umbrellas and agencies can be structured in a number of ways. Umbrellas may chargeback salaries, employment costs together with a fixed fee, or invoice a fixed uplift percentage on salary. Alternatively, agencies may prefer umbrellas to pay PAYE rates at a fixed percentage below the umbrella rate. The variety of options mean the arrangement can be tailored to individual agency preferences. Find out more about Generate PAYE
3. Joint Employment
Joint employment is an extension of the fixed PAYE Rate, and may also be considered a PEO model.
Both agency and umbrella company act as joint employers, sharing employment duties in line with existing operations. Responsibilities can be assigned according to preference, but typically the agency looks after recruitment, right-to-work and pay rates, whilst the umbrella company takes care of HR and payroll solutions. Both agency and umbrella are named on the employment contract and payslips can be dual-branded.
Transfers of salary costs between joint employers are not subject to VAT, providing agencies with a significant cash flow advantage and, if invoice finance is used, a real cost saving. Discover the benefits of Generate Collective (PEO)
How Can Recruitment Agencies Find a Collaborative and Compliant Payroll Provider?
Compliance is of increasing importance to business continuity, growth and success across the UK and Europe. Non-compliance can risk irreparable damage to company brands and market reputation, decimate relationships with contractor networks and risk huge fines.
To understand whether your potential provider is fully compliant and will protect your business from these risks, check the following:
Are they accredited by the Freelancer & Contractor Services Association (FCSA), the UK’s leading membership body for umbrella companies? FCSA accredited members must frequently test and update their processes to prove their compliance with all legislation.
Ask your representative about any other accreditations or Awards given for quality and compliance of service delivery and hold these up against other competitors to see whether they match up.
Non-compliant and unethical companies are being called out for their misconduct. Always research the company and their management team before including them on your PSL. Once you are associated with a company and their team, their bad press becomes your bad press.
Experience Under Pressure
During the coronavirus pandemic, many contractors have been disadvantaged. Ask your potential provider about their actions during the pandemic. How did they protect the health, wellbeing and employment of contractors? How was communication delivered to agencies and candidates and how were problems and complaints handled?
Experience The Generate Difference
Our customers are at the heart of everything we do, and our tailored services reflect our commitment to contractors and agencies. Our contractors trust us with their livelihoods, and our agencies trust us to protect their contractors at every stage.
By partnering with Generate your business will benefit from:
We invest time in understanding your agency on an individual basis and tailor our services to your specific business and contractor needs.
Personal Advice & Support
You receive a dedicated business manager and account manager from day one. Each question, referral and request your business makes, is handled by your allocated team. This ensures businesses requirements and expectations are always met on time.
Partnering with Generate, you can rest assured all contractor payments are subject to PAYE and national insurance. Guaranteed 100% compliant. No supply chain risk for you or your client.
Across all payroll solutions, your candidates will benefit from Generate’s first-class service:
- Telephone and online registration options
- Telephone, live chat and email support
- Workplace pension, with tax-efficient salary sacrifice options available
- Online CPD platform, with thousands of free and discounted career development courses
- Thousands of discounts at high street and online retailers
- Personal contractor portal, providing a one-stop-shop for all employment documentation and employee benefits.
- Workplace insurance coverage
- Sick pay and maternity/paternity pay