Top 5 New Year’s Resolutions for Recruiters/Staffing businesses

The festive season can be a busy time in HR and recruitment, with many employers spending the final month of the calendar year looking ahead at staffing proposals for 2016 as well as looking at headcount and temporary cover over the Christmas period.   While many of you may want to spend January in hibernation it is a good time for internal housekeeping to ensure that your business has proper policies and procedures in place and can enjoy a successful (and not stressful) 2016.

To help you get started we have set out our top 5 New Year’s resolutions for recruiters and staffing businesses:

1. Assess the impact of the forthcoming travel & subsistence relief legislation

On 9 December 2015 the anticipated draft legislation restricting tax relief on travel and subsistence expenses for workers providing services through intermediaries was published.  The proposed amendments to the Income Tax (Earnings and Pensions) Act 2003 are expected to be in force from 6 April 2016 and will affect agency and contract workers supplied through umbrellas and PSCs (where the PSC is operating within IR35).  February 2016 will see a further period of consultation on the wording of the legislation.  Staffing businesses and recruiters are advised to review their current contracts and supply models (i.e. whether using PSCs or umbrellas) and liaise with the umbrellas they are supplied by.  It is anticipated that this restriction on tax relief will impact the umbrella supply model in particular, as well as the take home pay of workers.  According to the draft legislation, the new provisions will not apply if it is shown that the manner in which the worker provides the services is not subject to (or to the right of) supervision, direction and control by any person.    In all other circumstances they will no longer be able to pay travel and subsistence expenses free of tax and national insurance contributions.  Whilst the supervision, direction and control test may be a familiar one due to its use in IR35 it is likely to be problematic for workers employed by umbrellas.

2. Carry out a holiday pay audit

Holiday pay cases continue to be heard by the courts and tribunals.  The Employment Appeal Tribunal (EAT) decision in the case of Lock v British Gas Trading Limited (heard in December 2015) is expected to be handed down in the first few months of 2016, and the Court of Appeal will be sitting in the case of Mr Conley King v The Sash Window Workshop Ltd & Anor on 9 February 2016.  Both are long-running cases concerning back-dated commission-based holiday pay.  Employers who pay commission-based remuneration are advised to look out for these decisions and carry out an audit of the possible impact on their workforce and the calculation of pay for periods of holiday absence. 

Subject to the decision of the EAT in Lock, the current position is that holiday pay should be based on the employee’s “normal remuneration”, being all elements of pay that are intrinsically linked to the performance of the employee’s contractual duties. This can include (amongst other things) overtime that the employee is required to work, commission payments, shift allowances and performance/productivity bonuses. How should this be calculated?  This is where further uncertainty lies.  The Advocate General, when considering Lock before the ECJ in 2014, suggested a 12 month reference period to average out pay but there has been no definitive finding.  The only guidance from the courts that we have is that the reference period must be a “period that is representative”.  This will vary from workplace to workplace and will depend upon the actual commission and overtime schemes in practice.  Some employers may be able to use a representative 12 week period but for others a longer period may be more appropriate to find an appropriate average pay. 

What is the current position on back-dated holiday pay claims?  If there has been a break of more than three months between the employee taking leave or being paid holiday pay at the correct rate, their claim for backdated holiday pay is likely to be curtailed.

Note also that these rules apply only to the 4 week annual leave entitlement derived from the European legislation (the Working Time Directive) and not the additional 1.6 weeks under domestic UK legislation (the Working Time Regulations). This means that in most cases, for full-time employees, the first 20 days of holiday pay may need to be at a higher rate than the last 8 days to factor in commission and overtime etc.  You may need to check what the employee’s contract of employment specifies.  Note also that claims submitted after 1 July 2015, are subject to an overall 2 year limit for backdated holiday pay.

3.  Review and update your contractual terms with workers and hirers

If you did not do so in 2015, the New Year may be a good time to review your terms of business with clients and terms of engagement with workers (whether engaged as PAYE workers or through umbrellas and PSCs).  April 2015 saw the introduction of what is known as the Intermediaries False-Self Employment or “Agency” legislation, requiring businesses supplying workers to make reports in respect of PAYE tax and national insurance contributions not deducted in respect of a worker, with records and reports to HMRC required from August 2015.  This was a good reason for staffing business to review their supply contracts and hirer terms to ensure that the correct indemnities and assurances in relation to the payment of tax and national insurance contributions were received by the recruitment business.  If you are carrying out such an exercise it would be a good opportunity to ensure also that obligations under the Conduct Regulations and the Agency Workers Regulations are adequately reflected in your contractual terms and that you have signed terms or clear deemed acceptance of terms from your workers and hirers.

4.  Review and update your internal employment contracts

No less important than your contractual arrangements with hirers and workers are your internal contractual arrangements with your recruitment consultants, resourcers and other staff.  Are these up to date, appropriate and signed?  In the recruitment and staffing sector you will want, in particular, to ensure that your commission arrangements and obligations to make payments are absolutely clear.  If there have been changes to any written scheme, ensure that these are clearly notified to employees.  Bear in mind that contractual schemes may require some consultation to effect a change.  Consider what happens to commission payments upon resignation, during notice and after termination.  What happens if the hirer does not pay an invoice or if a refund is required but a commission payment already made?  If you don’t have a clear commission scheme or rules, consider implementing one in 2016 to avoid future dispute.

Other contractual terms that are important are the use of reasonable and appropriate restrictions against competition and solicitation of clients and candidates after termination of employment.  The staffing sector often has a high turnover of staff and post-termination restrictions are a valuable tool for protecting business contacts.  These should be drafted carefully and should go no further than is reasonably necessary to protect a legitimate business interest.  They should be drafted carefully and appropriately for the recruitment sector covering clients, candidates and prospective clients and candidates, and possibly also supplier relationships where the employee may be able to materially adversely affect such a relationship to the detriment of your business.  Are your restrictions adequately incorporated into your employees’ contracts of employment?  The best position is to have signed copies on file. Whilst provisions contained in an unsigned contract can still be held to be binding, it is an area ripe for dispute and there is some doubt about the value of unsigned restrictive covenants in particular.  In carrying out your audit of such covenants, consider in particular employees who have been promoted but where no additional protections have been agreed which would be relevant to their possibly more client-facing position or their management of other employees where restrictions specifically designed to prevent team moves may be appropriate.  Note that new restrictions being introduced may require consultation with employees and some form of consideration in return, such as a salary increase, one-off bonus or new role.

5.  Ensure that your business contacts and confidential information are adequately protected

Much of the goodwill your business will have built with its clients will be as a result of a strong relationship and rapport with particular employees you have working on their accounts.  As well as their contact with your clients, your consultants will also have access to good candidates and presumably a database that your business will have expended considerable time, energy and expense in creating.  You will want to ensure that you have adequate protection in place in respect of confidential information, including information on your database and client and candidate contacts.  Whilst there are some implied obligations of confidentiality, these are limited and really only apply during employment unless the employee also owes a fiduciary duty due to their position or if the information amounts to a trade secret.  Furthermore, without an express definition of confidential information that is detailed enough to capture the type of information you would like to protect, the implied duty will only cover information that an employee is expressly told is confidential or is obviously confidential by nature.  Why leave this to argument and interpretation, particularly where there is likely to be some dispute over what is the employee’s skill and knowledge. 

Don’t overlook the database protection that you have in the Copyright and Rights in Database Regulations 1997.  Departing employees sometimes download sections of databases to take with them and this may be an infringement of the database right, offering another remedy alongside any claim for damages for breach of confidentiality.  Provided that there has been a “substantial investment in obtaining, verifying or presenting” the contacts of the database, you will have a database right.  The remedies for infringement of such a right include injunctions and/or an account of profits.

You may have confidentiality and database protection provisions in your contracts but are these up to date?  Do you require your employees to use social media such as LinkedIn but do not assert ownership over contacts made on such sites? Consider monitoring use of such sites (assuming you have policies entitling you to such monitoring) and consider requiring access to individual passwords, particularly where the business name and email address is used. 

Good contractual provisions and up to date policies are essential to protect your business information.  By putting in place adequate protections your employees will have a clearer understanding of what information they can or cannot disclose and will be less likely to attempt to copy parts of your database.  Furthermore, your business will be in a better position to take action against a departing employee who is benefiting from information they have obtained whilst working for you, or otherwise using it for the benefit of a new employer, with clear restrictions to show the court.   Don’t wait until an employee misuses confidential information or leaves along with a copy of your database! 

For further HR and employment law tips, for the recruitment sector or otherwise, please follow us on Twitter: @EmpLawHeroes

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.  If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.