The Right Thing

RECRUITMENT LIVE – Recruitment Live discusses the current and future challenge of being compliant in the recruitment industry.

In the first month of 2019 The Global Recruiter teamed up with IF Payroll in London to host a Recruitment Live discussion addressing the compliance side of the recruitment industry. With an industry still smarting from IR35 changes in the public sector, the introduction of new liabilities through the Criminal Finances Act 2017 not to mention possible new fines and prosecutions through breaches of the GDPR, the industry is also facing further challenges as IR35 changes are levelled at private sector companies in 2020. This discussion was unlikely to be straight-forward and calm, but it did illustrate the commonality of experience and views in the recruitment industry as well as bringing home the fact that even with all these new compliance initiatives, recruiters and recruitment service providers who want to do things right are still having to deal with competition from companies who want to cut corners. Indeed, despite everything it seems there are still clients and candidates who are willing to ‘take a chance’ in order to get the talent they want and maximise their returns. In attendance were:

Charlie Cox, Commerical Manager, SThree
Chris Griffin, Commercial Director, Social Personnel
Stuart Schuitmaker, Group Head of Contracts & Compliance, nGage Recruitment
Jidz Khan, Associate Director, TSSI
Hedi Ouardani, Principal Consultant, Socium MSP
Ray Walker, Founder and Director, IF Workforce Group
Richie Smith, Regional Director, IF Workforce Group
Julia Kermode, CEO, FCSA
Simon Kent, Editor, The Global Recruiter

The conversation kicked off with Jidz Khan making the point that while compliance may figure highly in the thoughts and strategic actions of recruitment business leaders it is extremely difficult to get this reflected at the coal face where sales are made. “You have a delivery team, usually young people coming into the business, trying to find candidates and they’re not thinking about compliance,” noted Khan. “They’re thinking about the person’s CV, the candidate and the client. Once they do get the right person then they look at all the challenges they need to overcome to get the deal.”

Chris Griffin echoed the dilemma that this can cause for recruitment businesses. Sometimes, in order to stay compliant it can be necessary to walk away from deals – whether on the grounds of what the candidate wants or what the client demands. A less scrupulous recruitment agency may be able to undercut a deal or pay the candidate more – they do this at their own risk, but sometimes it’s a risk they are willing to take.

Even the use of frameworks within some sectors has failed to result in entirely compliant operations. Part of being an effective sales person is the ability to overcome objections, so when a restriction – rates caps for example – is introduced, someone somewhere will try to work out a way to overcome that restriction if they believe they can benefit from doing so.

In terms of protecting a recruitment business from the perspective of compliance, Stuart Schuitmaker made clear that if a company carries out and records due diligence activities, there is little more it can do to protect itself. In today’s recruitment market the heightened awareness of compliance means it can fall to the recruitment business to educate clients about this issue and explain what the risks are to carrying out business in a non compliant way.

SThree’s Charlie Cox noted that to further ensure compliance in the supply chain, a staffing organisation can do so through the use of technology. A carefully designed CRM or ATS system can ensure contractors are correctly set up and that the decision on how they are engaged cannot be changed without special authorisation from senior staff. However, as Jidz points out problems often occur when the recruitment process contains manual activity – it is then that employees are likely to cut corners, or choose the easy option in order to secure their deal. 

Highlighting non-compliance

Those around the table were united in feeling that compliance is only really paid attention to when cases are picked up by HRMC. As mentioned above, there is a sense that individuals and organisations in the supply chain understand there is a risk attached to going outside the regulations, but sometimes they’re quite happy to take that risk and benefit from the extra finance or work they gain.

According to Julia Kermode, there are more resources being thrown at compliance and this part of the employment industry by HRMC, but the department is limited to some extent in terms of the amount of publicity and attention they can bring to this activity. She also noted that lobbying both HMRC and the wider political world was a challenge since the examples and possible impacts of legislation as perceived by the FCSA are sometimes not accepted by HMRC and MPs are essentially receiving their information from Revenue and Customs as well. That said, Kermode reported that HMRC had started to be interested in working with her organisation and others on combatting the non-compliant umbrella companies which have emerged following the IR35 changes in the public sector. 

The round table discussed some of the wider options open to the industry in order to reduce non-compliance. The way in which legislation continues to be added to the industry in order to close loop holes, shut down schemes and ensure everyone is taxed in a fair and equitable way is a little annoying for the industry, but an alternative scenario where the entire tax system is redesigned and re-implemented was acknowledged as impractical given the time it would take and the fact that by the time it was implemented it would no doubt already be out of date. As one participant noted, the gig economy didn’t exist ten years ago, and in another ten years the employment world will look different again.

While a greater level of licensing seemed to be more appropriate for the contract side of recruitment as opposed to permanent placements, it was also noted that even if the UK moved to legislate further in the area, the international nature of recruitment may still defeat any compliance objective. Without consensus across international business the likelihood of delivering transparent and legitimate employment relationships remained unlikely. 

The idea of licensing and greater regulation in terms of who was able to enter the industry was raised, and while some options gained a positive reaction – approaches from other countries, specific technology solutions that would patrol employment relations – it was also noted that such moves could kerb the entrepreneurial and innovative spirit of the sector. The fact that anyone can set up business with a phone and an internet connection is both a positive and negative facet of the industry.

The value of compliance 

More encouraging however, were reports that some clients were now viewing the issue of compliance as a value adding part of a recruitment service. SThree’s Cox explained that his company had targeted their top fifty clients across the board and specifically held meetings with them about the details and impact of IR35 changes in the private sector. He reported that on some occasions, rather than the conversation being met with confusion or limited to their client’s compliance specialists, they had found their presentations being opened up to a wider audience as their clients realise the importance and far reaching implications of this forthcoming move.

As Ray Walker put it, the crucial part of this was to attach clear value to compliant activities for the client. Compliance should not be a cost, a constraint or an administrative nightmare, it is instead a way of driving an efficient process:”If you follow this it will mean your deal goes straight through from start to finish,” he said.

The meeting acknowledged that some clients would listen to this kind of argument and that ultimately they did want to do the right things by their staff and within their employment supply chain. But equally it was equally acknowledged that some involved in the sector still didn’t truly understand exactly what was going on within some employment relationships. 

Overall, then, the discussion delivered a snapshot of a recruitment industry trying to deliver compliant solutions in the face of some adversity. Even after all the legislation, media reports and occasional cases it is saddening to find that recruiters – and recruitment industry suppliers – are still having to compete against less scrupulous suppliers who will exploit loop holes or push their luck in order to secure a deal. One would hope that even without a series of high-profile cases the general atmosphere around the industry would have been enough to reduce these cases.

At the same time it seems offering – and making a big deal of delivering – compliant solutions does put recruiters and suppliers at some advantage. No one wants to see their business in the papers for the wrong reasons and if a recruiter is delivering mission critical employees to a business the last thing anyone wants to happen is for that supply to be jeopardised or scrapped due to non-compliance.

Recruiters are already preparing for IR35 changes across the private sector and it is good to note that a large part of this work is to prepare and inform clients about the changes and possible impacts. At least that way recruiters stand a chance of keeping clients and candidates on their side while still delivering exceptional and compliant services.