The Good, The Bad and the Ugly - Addressing non-compliance in the supply chain for the good of today’s workplace

The world of work has radically changed over the last 40 years. Gone are the days of the 9-5 as we have seen a significant rise in the number of people opting to work for themselves as freelancers and contractors.  And, along with the prominence of the contingent workforce has come a proliferation of regulation and legislation as policymakers seek to catch up with the fast-moving pace of the modern working landscape. 

A catalogue of legislation has resulted in a series of unintended consequences and much of it has not served to help and support the contracting sector and the whole supply chain for the better.  The Off-Payroll legislation that was rolled out into the private sector in April has impacted some 60,000 businesses, 20,000 agencies and some 500,000 contractors.

Government has ignored advice and recommendations from stakeholders and industry experts so that the legislation continues to fail to address the underlying issues and challenges that our industry faces, namely non-compliance, transparency and enforcement.

• Non-compliance: In a market where all providers should be providing similar returns to workers, as they should all operate within the same tax rules, competition should be on business strength and service levels, unfortunately this is not the case. Non-compliance is fuelled by the complexity of the legislation coupled with a desire for workers to achieve the highest rewards for their efforts. Competition across the sector is driven by the final returns provided to workers and workers select providers on this basis.

• Transparency: The levels of complexity and frequent changes to legislation have resulted in workers bouncing from one structure to another. The latest changes, Off-Payroll working, have resulted in many workers operating through a new structure to them, the umbrella company. There are many examples where workers clearly do not understand the arrangements and therefore additional levels of transparency are required to aid the understanding.

• Enforcement: The current enforcement strategies do not work. They serve to incentivise non-compliant offerings and fail to support the compliant parts of the sector. The lack of visible enforcement, the lengthy delays in taking any action, and targeting the workers for recovery all serve the interests of those seeking to circumvent, or disregard, the rules.

Crucially, the only way to stop the perpetual cycle of legislation is a radical rethink and simplification of the rules.

The forces and drivers that applied back in the late 1990s are very different today. Contracting and flexible working is now formally part of a company’s structure and no longer seen as a way of reducing costs. Contractors provide the flexibility and agility that the modern business needs to survive and thrive.  Recent media headlines have shone a bright light on some malpractice in the sector which is serving to give the whole umbrella industry a bad name and for too long, Government’s inactivity has helped fuel the bad practice.  And, just recently, the Government has announced that it will be setting up a Single Enforcement Body comprising HMRC, EASI and The Gangmasters Labour Authority. 

Whilst it is good news that the Government is keen to step up its enforcement activity to protect the rights of workers and clamp down on bad practice in the labour market, I don’t believe that a single enforcement body will provide the answer and could significantly dilute enforcement activity as each department works together to navigate their way through the issues. 

A proactive rigorous and robust enforcement is critical to stamping out the bad practice in the labour market and I would suggest that the Financial Services industry holds a clue to what might work more effectively in the form of a compliance network.

Within Financial Services there are formal networks which exist to take responsibility for the compliance of its members. Along with this responsibility they hold the risk of significant fines and penalties if they are not assessing and maintaining strong compliance within their network. The network members also hold risks of fines and penalties where they fail to maintain their own systems.

This would result in a much smaller number of ‘compliance networks’ which are individually responsible for their members compliance, with all the associated risks that come with this.

This seems a logical first step as currently there are many companies relying on compliance accreditations where those accreditations avoid any reference in legislation, side stepping the debt transfer liabilities.  That begs the question - is that right?

With compliance moving up the agenda and many agencies relying on compliance accreditations I believe a new framework could be implemented with the rules easily adapted from the Financial Services Sector.

The concept is quite simple:

1. If you are a compliance accreditation body you are responsible for the compliance of your members and where one fails, and you have not taken adequate steps then you could be held liable.
   
   Whilst this would significantly increase costs to providers as the current regimes would have to adapt significantly to this, the increased opportunities would rebalance the increased costs.
   
   
2. Supply chains could either rely on the compliance standards knowing that due diligence has been carried out or conduct their own due diligence. Where a supply chain has carried out its own due diligence, they would take the role of the ‘compliance network’ with associated liabilities, many of which they already hold in legislation.
   
   If recruiters took any payments from payment intermediaries, they would assume joint liability with the ‘compliance network’.

This would be a significant change and provide a more level playing field across compliance networks and their members.

Such a move would assist in enforcement as many of the 1,200 payment intermediaries would be operating under a compliance network. Those not wanting to operate through a compliance network would be required to register directly with the enforcer, possibly EASI.

It would also allow for a framework for some form of compensation scheme for the sector with all providers required to input based on their turnover. This would help workers where they suffered losses.

One of the key components to make this work is HMRC and BEIS working closely with the networks and establishing a clear framework of operational processes, most of which already exist on an informal basis. It would then also align enforcement with the standards and ensure a far more robust and joined up approach.

The last three decades have thrown up many challenges for the sector. It is now more important than ever that the everyone in the compliant supply chain along with policymakers takes a collegiate approach to work together to do the best for the whole industry. To raise standards and drive out those who seek to perpetually break the rules and behave unethically.

***

Crawford Temple is CEO of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance and author of a new report entitled The Good, The Bad and The Ugly - Addressing the issues of non-compliance in the umbrella and payment intermediary sector