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Article: The months ahead by Stuart Talbot

The new head of business development for the Recruitment Finance Division of Lloyds TSB Commercial Finance provides his thoughts on the months ahead. 

2010 is proving to be an interesting year for the recruitment sector. As the UK rises above the recession we are witnessing changes and discovering new opportunities. There has been an increase in new start ups as market confidence slowly starts to grow. The temporary workers market is also increasing as businesses make greater use of temporary employment arrangements to achieve the flexibility necessary to meet the fluctuations in business activity. Whilst the new Coalition Government and its emergency budget has impacted on the industry with the announcements of an increase in VAT from 17.5 per cent to 20 per cent from January 2011, and the changes to national insurance, I actually believe that so far the impact on the Recruitment Sector specifically is minimal. The public spending cuts will see permanent placements cut back radically, however this might well be an opportunity for providers of temporary labour. Also, September 2011 sees the Agency Workers Regulations coming into force, which all temporary worker providers must fully understand. 

Increase in one-man-bands

Whilst there is still a lot of uncertainty about what the future holds we’ve seen an increase in the self-employed professional market. This might suggest that business confidence is growing, as more people take the risk to start alone. 

This has been bolstered by the government’s announcement to support UK enterprise, specifically small businesses and self-employed professionals through its decision to reduce Corporation Tax and review IR35.

That said the self-employed should be cautious. The government’s plans to reduce public sector spend by 25 percent could provide some self-employed professionals with significant challenges in terms of current contracts and ongoing work. 

Temporary workers market on the increase 

The volatile business climate has seen many businesses taking more advantage of temporary staff. This provides flexibility in times of uncertainty, and for quoted companies, keeps the headcount down to levels that seem acceptable to shareholders. 

For the temporary staffing sector the government’s announcement regarding National Insurance (NI) in the Emergency Budget seems encouraging. The rate at which employers have to start to pay NI will increase by £21 per week, meaning 600,000 employees will no longer need to pay tax. This step to alleviate the NI impact on employers will inevitably boost the jobs market and in-turn the temporary worker market. 

VAT increase

One of the most headline grabbing announcements of the emergency budget was the increase in VAT from 17.5 percent to 20 percent, which will come into effect from January 2011. 

As Anne Swain, Chief Executive of APSCo (Association of Professional Staffing Companies) pointed out in Recruitment International, since April 2009 end users have had to pay VAT on the wages they pay temporary staff. This is in addition to the margin they pay recruiters. The application of VAT to temps’ wages has imposed a very significant additional cost on end users of temporary workers - £270 million in the first three years. 

The further rise in VAT will add even more to the cost of using temporary workers, especially if the temporary worker is supplied to a sector where the end user cannot reclaim the VAT. The other side though is that there will be an increase in the gross value of invoices and therefore a short term improvement in cashflow where the Agency’s funding is via an Invoice Finance facility.

AWR how will it impact business

The new Agency Worker Regulations (AWR) are due to come into force in September 2011 as part of the European Agency Worker’s Directive. 

Under the new AWR agency workers will get the same rights as permanent workers. It is pivotal that recruiters are aware of the regulations and understand how they will impact on their business. 

There is some fear that the new regulations will force companies to stop using temporary workers, however temporary agency workers rights will only kick in after 12 weeks of employment. This could lead to contracts of 12 weeks becoming the norm. There will undoubtedly be further thoughts about concessions, and ways to manage through the legislation, but decision makers in the Sector must ensure they understand the regulations and are compliant, seeking professional advice where there is any uncertainty.

Agencies will need to think about how they will fund any additional admin costs incurred under the new AWR. Will they absorb the costs or will they pass the costs on to the employers? They’ll need to consider what impact this will have on cash-flow and investigate ways to fund it. 

Clever business planning will prevail 

Whilst the year ahead is looking a little turbulent for the recruitment sector, clever business planning will prevail. I hope that, where appropriate, recruiters are seeking funding advice to cope with the continued uncertainties in the economic climate. Now more than ever the recruitment sector needs its funder to be more than a simple commodity. 

Stuart Talbot has been appointed to lead the development of the Recruitment Finance Division. Stuart’s new role will see him positioned as a leading authority and expert in the recruitment market. Stuart has worked helping recruitment businesses at Lloyds TSB Commercial Finance for the last 12 years, and especially closely for the past three years, being instrumental in building up the Recruitment Finance Division. For more information on how Recruitment Finance can help you contact the team on 0800 587 6033 or email stuart.talbot@ltsbcf.co.uk

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