Reclassifying temps as “unsupervised” puts businesses and directors in jeopardy, says CXC Global
Agencies that advise employers to reclassify temporary staff as “unsupervised” are putting both their end clients and their directors in jeopardy, according to CXC Global.
The contractor management specialist has warned agencies that following the advice laid out by one recruitment firm recently to reclassify their temporary workers could result in huge fines for their end clients as well as significant punishments for the organisation’s directors.
The Chancellor, George Osborne, introduced measures earlier this month designed to tighten rules on how contractors and temporary workers can claim tax relief on their travel and subsistence expenses. According to the legislation, any self-employed professional who doesn’t require the ‘supervision, direction or control’ (SDC) of their employer can claim these tax breaks, while all other workers cannot. A presentation leaked by the Unite union has found that one recruitment firm has advised its clients to reclassify temporary staff as “unsupervised” in an effort to avoid the clampdown on the loophole.
Michelle Reilly, managing director of CXC Global EMEA, commented, “It’s simply wrong to advise businesses and professionals not to operate under SDC. The classification is down to HMRC’s interpretation and advising firms in this way is incredibly risky, particularly when they and their board of directors can be held personally liable. After all, nothing ruins a business relationship like a huge fine for the wrongdoing of one of your suppliers.
“However, the government must also take some of the blame for agencies adopting this approach. While they’re clear about putting in place overly restrictive rules for the contractor workforce, they’re certainly not clear about how to test for SDC, which leads to situations like this where agencies are essentially making up their own rules. Let’s be clear – this particular agency is in the wrong, but the government also has a part to play.
“Umbrella companies currently operate a three step test which tests for the presence of SDC and involves a questionnaire, a rates based system and an assessment of the contract itself, which isn’t robust enough to provide a level playing field for contractors.
“Here at CXC, we’ve completely moved away from this model and believe that unless a contractor or temporary worker is operating through their own Ltd Company, they should be classified as a PAYE employee. And to manage this change and better reflect the service we’re providing we’ve reduced our margins, which benefits contractors.
“If professionals want to be paid the money that they’re missing out on from travel and subsistence tax breaks, then that has to come from the agency or the end client, not from HMRC.”