Stuart Talbot gives his thoughts on how the changes will impact recruiters

2010 is proving to be an interesting year for the recruitment sector. As the UK rises above the recession we are witnessing changes and discovering new opportunities. There has been an increase in new start ups as market confidence slowly starts to grow. The temporary workers market is also increasing as businesses make greater use of temporary employment arrangements to achieve the flexibility necessary to meet the fluctuations in business activity.  Whilst the Coalition Government’s emergency budget has impacted on the industry with the announcements of an increase in VAT from 17.5 per cent to 20 per cent and the changes to national insurance, I actually believe that so far the impact on the Recruitment Sector specifically is minimal. Following the Comprehensive Spending Review on 20th October it will also take time to see how that is impacting on recruiters, although initial headlines appear to favour the education and healthcare sectors at the expense of local government. Regardless, support services, backroom staff and suppliers across the board look set to feel the pinch and it will be interesting to see if there’s a trend for agency staff to replace permanent workers.

Increase in one-man-bands
Whilst there is still a lot of uncertainty about what the future holds we’ve seen an increase in the self-employed professional market. This might suggest that business confidence is growing, as more people take the risk to start alone.

This has been bolstered by the government’s announcement to support UK enterprise, specifically small businesses and self-employed professionals through its decision to reduce Corporation Tax and review IR35.

That said the self-employed should be cautious. The government’s plans to reduce public sector spend by 25 percent could provide some self-employed professionals with significant challenges in terms of current contracts and ongoing work.

I’m a big advocate of self-employed protection. It is important the self-employed put up the necessary barriers to prevent bad debts. At Lloyds TSB Commercial Finance we can offer existing and potential clients Debtor Protection cover which many self-employed recruiters feel is invaluable as a safeguard against unexpected loss.

Temporary workers market on the increase 
The volatile business climate has seen many businesses taking more advantage of temporary staff. This provides flexibility in times of uncertainty, and for quoted companies, keeps the headcount down to levels that seem acceptable to shareholders.

For the temporary staffing sector the government’s announcement regarding National Insurance (NI) in the Emergency Budget seems encouraging. The rate at which employers have to start to pay NI will increase by £21 per week, meaning 600,000 employees will no longer need to pay tax. This step to alleviate the NI impact on employers will inevitably boost the jobs market and in-turn the temporary worker market.

We are seeing an increase in demand for our back office Pay and Bill service, CashFriday. This product (from Commercial Finance) can help businesses stay on top of invoices and ensure staff are always paid on time.

VAT increase
One of the most headline grabbing announcements of the emergency budget was the increase in VAT from 17.5 percent to 20 percent.

As Ann Swain, Chief Executive of APSCo (Association of Professional Staffing Companies) pointed out in Recruitment International, since April 2009 end users have had to pay VAT on the wages they pay temporary staff. This is in addition to the margin they pay recruiters. The application of VAT to temps’ wages has imposed a very significant additional cost on end users of temporary workers - £270 million in the first three years.

The further rise in VAT will add even more to the cost of using temporary workers, especially if the temporary worker is supplied to a sector where the end user cannot reclaim the VAT. The other side though is that there will be an increase in the gross value of invoices and therefore a short term improvement in cashflow where the Agency’s funding is via an Invoice Finance facility.

Clever business planning will prevail 
While the months ahead will undoubtedly feel a little turbulent for the recruitment sector, clever business planning will prevail. I hope that, where appropriate, recruiters are seeking funding advice to cope with the continued uncertainties in the economic climate. Now more than ever the recruitment sector needs its funder to be more than a simple commodity.

For more information on how Recruitment Finance can help you contact our team on 0800 587 6033.