Joint employment is an increasingly popular arrangement between at least two entities active within the contractor supply chain. Typically, the recruitment agency and the payroll intermediary are the most common entities in such arrangements, but this does not necessarily have to be the case. In certain instances, the hirer can take the responsibility of one of the employers normally in association with the payroll provider, with the recruitment agency remunerated purely by a one-off fee or incremental margin.
The joint employment payroll model initially emerged within the healthcare sector in part due to the zero-rated VAT status of the NHS and other employers within the sector. Agencies were financially penalised as they were charged VAT on the full cost of contract labour provision by payment intermediaries, as the Nursing Agency Concession was not available to companies below the agency in the supply chain. Many recruitment agencies were unable to reclaim or offset the VAT element of invoices. Given that the standard VAT rate is 20%, this commercial arrangement disadvantaged affected parties considerably.
Despite the suspicion that joint employment contracts provide nothing more than a vehicle to avoid paying VAT, Crawford Temple from Professional Passport confirms that such arrangements are totally legal and do not fall foul of any tax avoidance legislation providing they are documented and managed correctly.
Agencies are still able to charge VAT on their invoices to the hirer for actually finding a candidate, but the ongoing assignment costs remain exempt. Additionally, payroll providers can invoice recruitment agencies separately for their “margin” which are also subject to VAT. Temple encourages and prefers that these contractual relationships are agreed on a PAYE basis as it removes much of the confusion and complexity for the workers. Agencies do not charge the worker for these services under joint employment relationships.
Referencing guidance published by Professional Passport in September 2019, due attention must be paid to the finer detail of all documentation including assignment proposals, employee schedules and invoices.
In essence, clearly defining the relationship between the respective joint employers and their varying responsibilities to the contractor is a prerequisite to successfully implementing such a model. Typically, a recruitment agency is responsible for finding the contractor work, whilst the payroll intermediary is responsible for administering payments and statutory deductions, in addition to managing employment policies and grievance procedures.
The impending and statutory introduction of Key Information Documents (KIDs), being sent to contractors in advance of any given assignment as of April 2020, provides another opportunity to articulate the precise nature of the relationship and prove compliance. Equally, ensuring that payslips display all data and transactions correctly is essential in terms of both compliance and transparency. A workers’ actual earnings should be clearly aligned to the agreed employment arrangement, highlight the number of hours worked and holiday pay (accrued or rolled up), plus any statutory deductions or employment costs.
Considering the characteristics of the joint employment model, one can appreciate why it is becoming increasingly prevalent with the contingent worker landscape. Such arrangements offer significant commercial benefits to industries other than health including charities, banking and financial services. It seems common sense that sectors who are either zero-rated or exempt from VAT shouldn’t be charged an additional 20% which obviously reduces the value of their budgets and commercial competitiveness. In these relevant sectors, the resulting savings to end clients can go a significant way in helping provide the additional budgets, at effectively no cost, to deal with the Off-payroll rules coming in to effect in April of this year.
Divulging responsibilities across two entities can also help the worker understand exactly who to contact in relation to any given aspect of an assignment; for example, rather than a worker bombarding a recruitment consultant with regards to a pay query, they should directly engage with their payroll provider. Also, with the growth of many sectors stunted by skill shortages and increased recruitment costs, developing stronger and open relationships between those in the assignment supply chain can only enhance loyalty, productivity and indeed, harmony.
If you have any questions about joint employment or would like to learn more about how Solutio can help with your joint employment documentation, please contact Adam Jordan (Partnership Director) on 07789 488 909 or via firstname.lastname@example.org, or request a call back here
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