recruitment 23 On the horizon in 2016 …


The recruitment sector in the south is strong and buoyant with some key players choosing to base a large proportion of their operations in the region, writes Amanda Brockwell, partner and head of recruitment sector, Coffin Mew LLP


There is continued confidence and potential growth in the recruitment sector, with 94% of employers planning to increase headcount. There was also a 9.7% increase in turnover in the recruitment sector for 2014/2015 – these figures are from the REC, one of the sector’s key trade bodies.


Against this backdrop, however, there are significant external influences which are going to hit the sector in 2016.


National Living Wage


From April 2016, individuals aged 25 and over will be entitled to receive the National Living Wage of £7.20 per hour, increasing to above £9 per hour by 2020. Overall this is expected to cost employers £804 million (£672m in wages and £132m in associated non-wage costs, such as NICs).


There is also likely to be a ripple effect as businesses try and maintain pay differentials, estimated to cost employers £59.5m.


The cost to end-clients allowing for holiday pay and pensions, means either that recruiters will need to increase their pricing to preserve their margin or their margin will be reduced.


In public-sector occupations, eg domiciliary and residential care, where there are simply not the funds available to pay for extra costs, there may be a direct hit to recruitment margins.


Cap on NHS pay


We are expecting the Government’s announced plans to limit the amount payable to recruitment businesses for NHS placements to have a considerable effect on the sector, particularly those that hold NHS framework contracts.


By April, all NHS trusts will be unable to pay more than 55% more than a permanent employee’s salary for an agency worker. This is the case for both medical and non-medical agency placements.


This may well have a clear effect on recruitment margins – details have yet to be announced, but given the Government’s need to restrict NHS spend, we think this 55% limit will probably include the total fee payable to the recruiter (including all pension, holiday pay as well as margin).


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – MARCH 2016


More worrying is the fact that this could seriously limit a recruiter’s ability to attract and retain candidates for placements, bearing in mind that there are more attractive opportunities overseas or, particularly in clinical roles, in the private sector where caps will not apply. Those businesses that have entered into framework agreements with NHS trusts will seriously need to review their business plans and forecasts. The problem here is really one that the salaries (and possibly the working conditions) within the NHS are simply not attractive to employees on a full-time basis: if that problem was solved, in all likelihood the NHS reliance upon agency and temporary workers would diminish significantly.


Our view is that this limit is perhaps just the tip of the iceberg; we can see this limit being rolled out to other public bodies which regularly source their workforce from the private sector by way of temporary placements – the defence technology side of things, to name but one.


However, all is not bleak: the Government (no doubt on the back of the recent junior doctors’ industrial action and the disruption to non-emergency services) has just closed its consultation on the prohibition on appointing agency workers to cover positions where staff are involved in strike action. It is clear that it wants to remove this prohibition, so watch this space for potential new avenues of work – both public and (albeit less frequently) private sector. This is a highly-political step, and any future labour government (particularly under its current leadership) will almost certainly look to reverse this move.


Pay audits


Primarily affecting the larger recruitment companies, 2016 is likely to see the introduction of mandatory publication of pay audits for employers in the private and voluntary sectors with 250 or more employees. This is designed to highlight gender pay gaps.


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The advice to businesses caught by the new requirement is to carry out an informal pre- audit before this comes into force, in order to establish the administration involved and to identify issues in advance. Unfortunately, it is currently unclear whether temporary workers should be included in the audit.


Issues on the horizon


The initial discussion document issued by HMRC on IR35 heralds potential changes in 2016. While still early days, it is clear HMRC is targeting abuse of IR35 and the areas that are likely to come up for consultation will include making 'engagers' (being end-clients) liable for any non-payment of tax and NICs arising from any individuals engaged through personal service companies or umbrella companies; not just the recruitment company involved. One area for concern will be that if this risk is moved to end-clients, they may be less likely to take on workers via a recruiter, since one of the reasons recruitment companies are used is to remove the associated risks.


Conclusion


Therefore, while the markets look buoyant, the sector needs to be on its toes in terms of meeting the challenges from regulatory and political influence and should plan its business models accordingly.


Details: Name: Amanda Brockwell Email: amandabrockwell@coffinmew.co.uk Tel: 023-8057-4302


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