Only 23% of construction business that use agency workers are aware of new HMRC rules on employing temporary workers that could potentially increase their costs, according to a survey of 600 construction employers by law firm Irwn Mitchell.
The survey has been published six months after the new laws affecting agency workers were introduced, after a brief consultation from December 2013 to March 2014. Since 6 April 2014, employment agencies are required to ensure all workers supplied to an end user and who no longer pass HMRC’s test for being classed as self-employed, should be treated as employees and added to their payroll.
This means that the the recruitment business will deduct the individual’s Income Tax and National Insurance Contributions via the PAYE system. The measure could could affect up to 200,000 construction workers in the UK.
Irwin Mitchell partner Christopher Tutton said: “The fact that a quarter of ocnstruction businesses are unaware will be of concern to the government, but it si perhaps of no great susprise when you take into consideration the hurried government consultation and implementation.”
But in a further change, from April 2015 it will also become compulsory for employment agencies to report individuals that are not taxed as employees to HMRC. Failure to do so will result in financial penalties.
Of the businesses that were aware of the new rules, only 13% said that employment agencies were passing on the cost associated with the new rules to the end user, while 25.4% were not sure what the financial impact was, and 61% thought that agencies were absorbing the costs. The law firm says there could be several reasons why agencies are not yet passing on the full cost.
Market forces have put pressure on agencies to keep their rates low, and – in light of the rushed implementation – many have possibly not had time to negltiate an increased rate. They might also be supplying on fixed term arrangments, which have not yet reached their renewal rate.
But the firm points out that this is likley to change in the future. Tutton commented: “I think it likely that recruitment firms will increasingly try to pass costs back once the reporting requirements kick in next year, with employment agencies having to report non-taxed workers to HMRC from that date, or face penalties.”
“Recruitment agencies operate on tight margins and as their costs rise and reporting obligations increase, we believe that the number of firms that say that these rules will impact on how they price work will grow considerably. This in turn will have a knock on impact on the competitiveness of UK construction firms. “We believe these rules are critical issues for employment agencies and construction businesses, but as costs get transferred, the pressure on the construction industry to manage them will intensify. ” The report by Irwin Mitchell also highlighted that overall, construction firms were still optimistic about trading conditions during the next 12 months.
Almost 70% of construction businesses are more optimistic about their future prospects than they were 12 months ago. Confidence about their company’s prospects was highest within larger firms and amongst businesses based in the East Midlands.
However, demonstrating the impending impact of the rules on future overheads, over 60% of construction firms expect labour costs to rise during the next 12 months.
