ARC: What to watch out for this year

Adrian Marlowe

Adrian Marlowe of the Association of Recruitment Consultancies urges recruiters to keep a close eye on developments this year.

1. Have your say on the Conduct Regulations

The consultation on the revised Conduct of Employment Agencies and Employment Businesses regulations has recently opened and will last until April. The Government is considering the extent to which any regulations for the industry need to be retained, and is contemplating self-regulation as an option. There are a few elements in the proposals we feel merit discussion and where agencies should be having their say.

Under the current regulations there’s a requirement that a worker is paid, regardless of whether the agency has been paid itself. In the context of what is happening in RPO situations such as I describe below, this puts an unfair

burden on the second tier agencies that pay the worker, because agencies further up the chain that don’t have the same obligation. The solution is for there to be straightforward payment terms ruling out ‘pay when paid’ clauses.

Most people in the sector feel that the current agency conduct regulations match good commercial practice and underpin standards. While there are some areas that need tidying up, the question is whether the enforcement framework should be conducted by government, or whether there should be self regulation.

This is a great opportunity to address issues and call for a level playing field.

2. Create a level playing field

There’s a sense that big business is gaining ground at the expense of smaller businesses in recruitment, and one of the strongest influences on this is the increased popularity of recruitment process outsourcing (RPO). More and more hiring organisations find the model attractive because it enables them to consolidate their recruitment processes, plus there is the prospect of lower margins and longer payment terms.

The problem is that if an RPO company agrees lengthy payment terms with a hirer, unless the RPO is going to fund payment itself, it’s going to pass those terms further down the line. One of the ways they can do this is by using ‘pay when paid’ clauses in their contracts (so they only pay the agency further down the chain when they’re paid by their client). In order to meet that cost, this often means that the second-tier agency has to finance itself, which can be both costly and difficult.

This is unfair, as it will invariably be the larger organisations who can ‘hang in there’ and service the RPOs because they can handle the finance terms – the smaller ones, who may be offering specialist skills the hirer needs will find it much harder.

The end result is that some with those specialist skills may decline the business and deny the hirer access to those abilities. Others that accept the risk may make an error of judgement and perhaps go out of business, leaving agencies and workers facing losses.

3. How the economy affects the recruitment supply chain

There were a number of headlines this month about a large IT services provider, 2E2, going into administration. It operates 10 subsidiaries, many of whom had contracts with some of our members to supply staff. At least five of our members have been affected by the problems at the company – in particular those who were operating on ‘pay when paid’ terms. [Editor’s update: some aspects of 2E2’s business have just been acquired by 02]

It’s uncertain whether they’ll ever get paid, despite the fact they’ve supplied (and paid) the agency workers who have done the work. It leaves a bad taste that you’ve done the work you’ve been asked to do by the agency, you’re entitled to your fee, but the organisation meant to be paying you goes bust, so you’ll almost certainly suffer a loss. 

4. The impact of social media

Social media has already made huge in-roads into recruitment in the past few years, but it also raises a number of questions about employment agencies’ future.

For example, does the Government intend to allow LinkedIn – which is effectively a global employment agency because it helps people to find jobs – to continue charging for its premium services? Facebook, too, is moving into the recruitment arena with its BranchOut service. One of the considerations in the conduct regulations is whether we should keep the current definition of ‘recruitment agency’ – could it be that a new definition might lean in favour of social media organisations?

It seems that the Government is considering whether online businesses, such as job boards, will ultimately be able to charge candidates to post CVs. But if this is allowed, and terrestrial agencies cannot charge candidates for providing them with work, that seems to be clearly in favour of job boards and other online operations. This could really affect the current equilibrium we have. 

5. Get clarity on IR35

The Government consultation on the proposed Finance Bill – and crucially for recruiters, the element in it around the IR35 tax legislation – closed earlier this month. ARC reviewed the document and we submitted our recommendations for amendments. The main concern here is that the Government will extend the scope of the legislation to include ‘office holders’, yet there is some confusion around the definition of this term. If the definition is left as it was in the draft, we have a concern that IR35 will apply to a much wider range of contractors than currently. The solution is to amend the legislation to make sure that ‘office’ is clearly defined, and it would be helpful if the government could clarify both the aims behind these proposals and their meaning.

 What will happen if it’s not clear? This Government or future administrations could use this loose definition to pursue more contractors with claims for tax. These contractors may then request higher rates from agencies to cover their increased tax burden. Hirers won’t necessarily want to pay any more, so the squeeze could be on agencies and it could affect their margins.

ARC have been successfully lobbying the Government for some time on all these issues, pressing for change to help the recruitment industry.  By having a say on the conduct regulations and paying close attention to the developments affecting our industry, we now have the opportunity to create a fairer and more effective business sector for all.

 Adrian Marlowe is chair of the Association of Recruitment Consultancies (ARC).