A judgement that alters the landscape
DeeDee Doke investigates just how far-reaching the consequences of Mr Justice Parker’s recent ruling against Cordant’s challenge will be.
For some in the recruitment industry, Mr Justice Kenneth Parker’s rebuff last month of the Cordant Group’s High Court challenge to regulations preventing the use of tax-free travel and susbsistence (T&S) expenses from counting towards national minimum wage (NMW) pay was a welcome holiday season gift.
“The new ruling levels the playing field,” says Mark Mitchell, chief executive of multi-sector recruiter Meridian Business Support.
But the regulations’ 1 January implementation closes the door only on application of T&S expenses to NMW-paid workers. Alan Nolan, senior partner at Aspire Business Partnership, suggests that worse alternatives may become more prevalent as some recruiters who operated the previous salary sacrifice schemes seek ways to recoup the financial benefits which have now evaporated.
One example Nolan cites is an increase in offshore self-employed models, in which workers will become self-employed via offshore companies, “then the UK will have no jurisdiction” to regulate pay activity.
Under other schemes, temporary workers become directors of a UK limited company which supposedly have to pay National Insurance and PAYE as well as not receive Holiday Pay. In a notice dated 30 December 2010, HMRC said they had not seen any such schemes which they felt did comply with current requirements.
Andy Hogarth, CEO of industrial recruiter Staffline and a vocal critic of the salary sacrifice schemes, contends that the real issue is how much a worker benefits.
“No problem if the fair balance goes to the temporary worker and the company can recover its costs,” Hogarth says.
The balance issue was addressed in Mr Justice Parker’s ruling, in which he cited an example of a worker on Cordant’s scheme who benefited by £17 a week while Cordant benefited by £45.
Hogarth also believes that the pay rate at which salary sacrifices can be applied should be established. Recent HMRC notices have said that, in their opinion, schemes cannot operate at or near minimum wage, without defining what “near” is. Some experts at major accountancy firms have suggested that schemes should be applied at pay rates no less than £8 per hour.
At software provider Zeel Solutions, which offers a product aimed at keeping agency owners compliant in applying T&S expenses, business development director David Smith said that a wage level of £6.25 per hour still allows worker and agency to benefit financially by applying T&S expenses to pay. “But we don’t cap it at a pay rate as long as it’s clear of minimum wage,” he said.
Smith acknowledges that “if the legislation hadn’t changed, we could have taken our product into new markets”. But he anticipates that the implementation later this year of the Agency Workers Regulations, which requires agency workers to receive equal treatment to staff after 12 weeks on the job, will add another dimension to the T&S debate.
Zeel’s Smith contends that recruiters will look to directly employ their agency workers under the so-called Swedish derogation to retain low margin business and dovetail their workers’ T&S expense programme with managing the AWR-mandated pay and benefits into one system.
However, Meridian’s Mitchell is dubious about whether recruiters will opt to employ workers. “This model will simply not be sustainable for many smaller recruitment businesses with limited cash flow,” Mitchell said.
Recruiters are no strangers to creativity and, no doubt, creative solutions to the new regulations will emerge as economic conditions and competition for clients continue to dictate the need to make and save money. What clients will think is yet another matter.
