Does a Brexit spell failure for your Agency?
By IAN KNOWLSON , Recruitment Training Group
On 23rd June, the UK will make the biggest single decision of a generation when it votes on whether to leave the EU.
There are strong emotions on both sides of the argument over whether a Brexit is good or bad for the UK. The bickering is switching many business owners off the debate, but it would appear few are considering what impact it will have on their companies.
Recently, I spoke at the Recruitment Leaders Connect London conference and during our workshops I found myself surprised at how few of the recruitment business owners present had given any consideration to the impact of a Brexit on their businesses.
Some of you may be asking why? Nothing will happen this summer – if we do decide to leave the EU, it will take two to three years for the situation to unwind.
Well here are a few facts which may make you think a little.
The UK’s working population is 31.4m with roughly 16% of which are non-UK workers. Among them are 2.1m EU nationals, and should the UK vote to leave the EU then a deal would have to made. If not, these people would be ineligible to automatically continue to work in the UK.
The main sectors, which this is likely to affect, are:
• Information and communication: 24,000
• Professional, scientific and technical: 11,000
• Financial and insurance: 7,000
• Human health and social work: 3,500
• Education: 2,500
• Manufacturing: 2,250
• Other sectors: 6,500
(Industry sectors for skilled work applications for visas: YE Dec 2015).
The Brexit Campaign argue that a deal will be struck for the UK to become a non-EU Member of the EEA (European Economic Area) to enable these people to stay in the UK and therefore not a threat. But those campaigning for Britain to remain in the EU, ‘Bremain’ Campaigners, argue there is no certainty this will happen or that all workers will qualify to work here as they do now.
If that were the case, then many EU workers would then have to apply and be granted a Work Permit under UK Home Office rules. This typically takes 2-3 months and costs between £575 and £1,164 per application.
Prudent recruitment agencies are starting to look at the impact of a Brexit by assessing how many of their existing annual workforce or permanent placements are EU nationals. If the numbers are low, less than 5%, then the impact on your agency may be small, but for those with 15-20% EU placements, the disruption and uncertainty may be more serious.
For some sectors that are placing less unskilled labour or labour that does not appear on the Home Office’s Tier 2 Shortage Occupation List, this may be more problematic as they may struggle to receive a work permit. For temp agencies operating in construction, manufacturing, distribution and food processing industries that are placing significant numbers of low skilled EU workers, this could be a major issue and have serious impact on their profitability.
Those making significant permanent placements of EU Workers, discussions with your clients over their willingness to sponsor work-permits of EU workers, should the need arise, may allay many of your concerns. The NHS and other public sector organisations, for example are currently very reluctant to do this for agency-supplied staff.
Either way, a review of how a Brexit may affect your business may enable you to look to switch your traditional business markets. At Recruitment Training Group, we have worked with four of our clients to shift their emphasis away from those sectors which may leave them vulnerable, into placements of more skilled workers or diversified into new sectors.
Another factor to consider is the impact on supply and demand. It has been argued that the slow rise in UK earnings, post the recession, has been caused by the increased demand for skilled labour being satisfied from workers entering the UK from EU countries. Nearly half the growth in employment last year was accounted for by foreign nationals and the growth in EU Citizens coming to the UK is forecast to continue rising year-on-year, while non-EU citizens are projected to continue decreasing in numbers.
The demand from the EU for workers looking to work here certainly continues to rise.
In February 2016, job-sites recorded the number of web visits received from EU workers was up by 13%, when compared with the year before.
Looking at the week before the referendum announcement in comparison to the week after, the data shows big spikes in traffic from many European countries:
• Belgium +109.2%
• Croatia +69.9%
• Greece +68.3%
• Netherlands +35.5%
• Denmark +29.6%
• Poland +26.6%
• Lithuania +26.5%
A Brexit would disturb this equilibrium and would likely see a significant rise in the cost of certain types of labour as skills become scarcer. This could be good for agency permanent fees and margins if you can find the workers, but the extra cost of resourcing these skills might eat up your increased margins.
For organisations offering payroll, umbrella or factoring services to agencies, a Brexit may have larger implications. As margins are already quite low and their exposure in some cases could be as high as 15-20%, temps are low skilled and low paid EU workers.
Whatever your views on a Brexit and the benefits of immigration – one thing is certain, the UK could not survive a sudden loss of 2.1m workers overnight, so a solution needs to be found. Would this be hassle free or cost neutral? That appears at best unclear.
If the profitability of your business is significantly dependent upon EU workers then it would be wise to start to look at the impact of a Brexit and make some contingency plans.
Even if it is not the case then there would be considerable uncertainty after a UK vote for a Brexit, and before any pan-European agreements had been negotiated. It is highly likely to have an impact on the supply of UK labour and potentially economic growth so wisdom would suggest a degree of caution.