Onshore Employment Intermediaries Legislation – What Recruiters Need to Know

Onshore Employment Intermediaries Legislation

In 2014, the government reacted to perceived abuse of employment status rules in the construction industry by enacting the Onshore Employment Intermediaries Legislation. At the time the introduction of the new rules caused widespread fear and uncertainty. For example, we saw providers saying it was “impossible to prove a negative” so “all CIS workers must switch to umbrella employment”. This is clearly not the case, as we’ll explain below.

The industry has been living with this legislation for the last 4 years, and yet it is often misunderstood or applied incorrectly, potentially leaving recruiters at risk and limiting their access to quality candidates. Let’s take a look at how it’s supposed to work.

What does the Onshore Employment Intermediaries legislation mean to recruiters?

The legislation sets out to tackle “false self-employment” by requiring that PAYE tax and NICs are deducted where the worker is subject to supervision, direction or control (SDC) of the manner in which they complete the work.

Only when SDC can be proved to be absent can the worker be safely treated as self-employed. Otherwise, PAYE tax and NICs (employee and employer) become due.

As a recruiter, your responsibilities under the legislation are:

  • Ensure the correct employment status is used for all the workers you engage. This includes being able to evidence the absence of SDC in each engagement where PAYE is not operated.
  • Where SDC exists, ensure PAYE tax and NICs are deducted and paid to HMRC, including payment of employer NICs. This might involve running PAYE yourself, or outsourcing to a compliant umbrella employer.
  • Where you engage workers without operating PAYE, you must report details to HMRC on a quarterly return.

How this affects recruiters engaging CIS workers

The CIS scheme is a self-employed structure and should only be used where the worker is genuinely self-employed for Onshore Employment Intermediaries’ Legislation Purposes. The CIS scheme should not be used on contracts where SDC exists, otherwise the recruiter will become liable for any unpaid tax and NICs.

Is SDC present in practice?

Where SDC exists in practice, it won’t help that the contract says it doesn’t and if the right to SDC is present in the contract, it makes no difference if that right is not exercised. SDC must be absent from both the contract and working practices for the worker to be treated as self-employed. It’s therefore vitally important that the contract accurately reflects the operational reality.

Definitions of SDC

Supervision

This is where someone oversees the worker to ensure they are doing the work correctly, and that it’s done to the required standard. This can also include aiding or assisting the worker to develop their skills and knowledge.

Direction

Someone provides instructions, guidance or advice about how the work should be done.

Control

Someone dictates what work the worker does and how they go about doing it. This includes the power to move the worker from task to task as priorities change.

It’s important to remember that if one of these things happens, or the client has a right to do one of these things, then the worker is classed as being “under SDC” and cannot be treated as self-employed.

Does anyone actually fall outside SDC?

The definition of SDC is intentionally broad, and it’s notoriously difficult to prove that something doesn’t exist. However, you will have noticed that the CIS Scheme has continued to run over the last 4 years and self-employment in the construction industry is far from dead.

In practice, contractors who are genuinely self-employed should be able to demonstrate that SDC is absent. From a recruiter’s point of view, there are some challenges though:

  • It’s often difficult and time consuming to gather accurate evidence of SDC status. This is particularly marked where the worker is focused on “passing the test”.
  • Workers often operate in different ways, even where they’re doing apparently similar jobs on the same project, so the “operational reality” can be difficult to pin down.
  • Workers understandably want to know the employment status before they start work, because it affects their take-home pay. This is often problematic because working practices as important as the contract, and these can be difficult to detail before work starts.

How can recruiters manage the risk?

One possible solution is to insist that all workers operate as employed – which is exactly what some providers did 4 years ago. However, in a competitive sector, the resulting higher costs and lower pay make this response impractical.

The “head in the sand” approach of leaving it up to the worker to decide and hoping it doesn’t go wrong may work for a while but sooner or later this approach will be extremely expensive and damaging, and again it’s clearly not practical as a long-term solution.

A more measured solution is to partner with a compliance expert, like Orange Genie Construction, who can support self-employed contractors and provide umbrella employment for those who need it. Partnership with an expert supplier allows you access to specialist expertise and gives you the chance to outsource some of the work and risk, allowing you to focus on what you do best; recruitment.

If you have questions about the onshore employment intermediaries legislation, or if Orange Genie can help in any way, please contact our expect team on 01296 468 483 or email info@orangegenie.com.

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