Payments Industry, Employment Services

4 ways regulatory change influences payments in employment services

Modulr By Modulr on 5 August 2019   •   3 mins read
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Regulation in the employment services sector is in a constant state of flux. Every year new requirements arise, bringing with them additional costs and challenges. As a result, employment services companies need to be aware of legislation changes and adapt accordingly or suffer the consequences.

In this blog we take a look at 4 new regulations that are impacting companies in the employment services sector:

Rule amendments impact tax ownership and responsibilities

As legislative and tax regulations change, the responsibilities of the parties involved in temporary work often change too.

For example, amendments in IR35 rules mean contractors working in the public sector are now allocated their IR35 status by the client instead of the contractor. As such, contractors placed through agencies that fall within the boundaries of IR35 will require the agency to pay them through PAYE and must process tax, NI & VAT payments.

This change of responsibilities impacts all parties involved and incurs additional admin costs for agencies when working with contractors.

New variable tax rules increase admin

With the introduction of a VAT Flat Rate of 16.5%, applicable to limited cost companies, the rise of uptake has created an additional admin headache for employment services businesses.

Beyond the flat rate, changes in the tax treatment of expenses have also impacted tax relief rules for contractors who are supervised, directed and controlled by the end user, further complicating tax administration.

These changes add further variables to tax management and admin, making it more difficult to process and also add yet more operational costs for companies working with large volumes of freelancers and contractors.

New reporting responsibilities require enhanced data management

With the arrival of Gender Pay Gap Information Regulations, employment businesses must report on the pay of temporary workers who are engaged in contracts to perform work personally, and who they pay directly.

In the event a contractor works under an umbrella or other intermediary in the supply chain, they will be considered the relevant employer for reporting purposes.

As such this creates additional administrative tasks around the necessity for more transparent reporting and requires the relevant systems to effectively capture the data across the hiring ecosystem.

In-demand contractors will charge more to cover expenses and pressurise agency profit

Finding good contractors can be tough, particularly in niche fields, and this challenge is only going to increase as costs rise. With many contractors moving onto a PAYE basis and losing tax deductions against their expenses, it’s likely they’ll look to recoup that loss through higher rates.

This will be a problem for recruitment agencies as key sectors like health and education are cutting costs to combat the rises, putting even more pressure on agency fees and profit margins.

As regulations change, the employment services sector will need to evolve to accommodate while maintaining profit margins and this is where innovative payments processing can be a valuable solution.

Using automated payment processing, employment services companies will be able to manage a greater volume of payments, but also reduce costs, errors and administrative overheads. Worth considering when tackling the regulation-related challenges.

For more insight into the role of new regulations and innovative payments in employment service, check out our guide.