Recruiters face tight payroll timelines due to imminent VAT changes
The most important issue to flag up for recruiters are the very tight payroll deadlines as a result of the imminent change in VAT. In the 2010 Emergency Budget the Chancellor announced an increase in the standard rate of VAT from 17.5 per cent to 20 per cent effective from 4th January 2011.
Hence, recruiters using payroll services are likely to face extremely tight timelines from their supplier to enable payments to reach temporary workers’ bank accounts by Friday 24th December and Friday 31st December before the increase in VAT.
The Christmas period is often a funny period generally for recruiters as while it’s technically a five week month, because of Christmas it can put extra pressure on a company’s cashflow. The reasons for this include early staff pay being paid before Christmas Eve and the withdrawal of accrued holiday pay, made especially noticeable as it’s often a time when there is reduced invoicing.
An ongoing problem throughout 2010 which hasn’t gone away is the way many public (and some private) sector companies engage agency workers using recruitment process outsourcers (RPOs) which has serious funding implications for recruiters. While there is no definitive solution for most firms, the trade association representing members of the invoice discounting and commercial finance industry (the Asset Based Finance Association) has been lobbying hard to try and help all parties resolve this issue and is recommending one particular legal solution.
RPO contracts can be framed so that recruiters have a direct contractual right to be paid by the end user. This can be done by using the “agency” model of RPO contract which is already in place at some end users. However, while the process of educating end users is slow, there are signs that they are increasingly recognising that the financial problems experienced by recruiters can come back to haunt them.