Last night’s documentary on @bbc5live has unearthed a potential pensions scandal that should have the Pension Regulator and the DWP springing to action.
The problem is this. The Agencies that have supplied teachers and apparently social workers to (local) Government have been giving the staff they supply the choice of paying tax under PAYE or by-passing the normal rules governing UK employment and opting to be employed by an offshore company (in the example investigated – ISS – the company being registered in Sark).
It’s a big problem for the UK tax payer (or more properly our social security system). ISS employs 24,000 staff who on average earn £160 per day on which 13.8% employer contributions are due. Multiply £90 pw by 24,000 and you can see that ISS alone are costing us £2m a week. ISS have been trading since 2005
And that’s before we come to employee contributions.
By taking the offshore route the employee is saving on contributions to UK social security but in stepping out of the system, they are taking a number of risks.
- He or she may be losing some of the main planks of UK employment protection – maternity and sickness pay.
- Since National Insurance is not paid by the offshore payroll company, there is a question as to whether the employee is building any credits towards either their basic state or their second state pension.
- Since the offshore company is bypassing NI, it looks as likely that it will by-pass the auto-enrolment regulations. So the employee is also missing out on contributions against their earnings into a workplace savings plan
- If it turns out that this is deemed an artificial arrangement, then in the absence of a proper employer, it may be the employee who is responsible for payment of backdated contributions.
For the risk taken on, the employee might properly expect to get some serious reward.
None of the employees interviewed could articulate just what they had got in return for taking all these risks. The clear impression was given that the bulk of the savings were being earned by the offshore manning agency with hints of kickbacks to the recruitment organisations.
Similar issues arise in other areas of reward – especially in the complicated world of flexible benefits, but here there is a strong emphasis on “informed decision making” and transparency on what is being given up and what the employee upside might be. This does not appear to be happening when the recruitment agencies offer choices to contractors.
It’s time for the DWP and HMRC and indeed the Pension Regulator to take urgent action to investigate these practices and ask some important questions.
- Under the Agency Worker Regulations, are these teachers really generating the majority of their earnings offshore? If the teachers and social workers mentioned are earning their money in the UK, why are they being treated as working offshore?
- If the HMRC has sanctioned these practices why- when and where?
- If there is no proper documentation that these practices are legal, how have the ultimate paymasters, the local authorities, not looked into what their agents , the recruitment consultants are getting up to? Do the procurement and governance teams not have a responsibility to ensure they are sub-contracting to fit and proper organisations?
- Since when has anyone done any proper work on Sark? It is a shell country with a horse and cart as the only source of public transport (really!). Where does the administration and communication of what is going on – happen?
- Have the DWP and tPR investigated how and when ISS (the Sark one) are staging auto-enrolment for their 24,000 odd employees – or is the employer deemed the recruitment agency?
- Is tPR aware that offshore payroll agencies cannot contract with NEST as NEST will not accept contributions from offshore bank accounts (for money laundering reasons)?
- What are the positions of employer representatives? Who is representing the interests of these teachers (and other contract workers).
From what I heard last night, the abuse of employment laws, national insurance and pensions legislation is something endemic among these offshore payroll companies. If so, then something should be done about it. Since it is taxpayer’s money that is used to fund them, then the solutions look fairly straightforward.
I am not a journalist, I am a pensions consultant who wants to see people getting decent retirements. I generally support Government and am certainly on the side of the UK tax-payer of which I am happy to say I’m one. Seldom have I felt so unconflicted!
If as the program suggested, ISS is the tip of an iceberg, then we need to get on with this work at pace as we are on the cusp of a pensions revolutions that looks like it should be benefiting the contract teachers in the first quarter on next year.
A lot has been written on this post on various private websites ; the stand-out comment (for me ) comes from Helen Powell who posted this on www.mallowstreet.com
Fascinating stuff! Your blog post said that:
‘The Agencies that have supplied teachers and apparently social workers to (local) Government have been giving the staff they supply the choice of paying tax under PAYE or by-passing the normal rules governing UK employment and opting to be employed by an offshore company’.
Part of that conversation therefore ought in fairness to include the question of whether the applicant wants to pay tax under PAYE with the possibility of being auto-enrolled on x date by the agency, or opting to be employed by an offshore company in which case they don’t get auto-enrolled until 2017. The AE prohibited recruitment conduct provision would cover that conversation, and includes statements made or questions asked in the course of requesting information in connection with an application, providing information about employment, or proposing terms for conditions of employment.
However, both the ban on prohibited recruitment conduct and the ban on inducements are framed in terms of workers opting out of AE, not in terms of requiring information to be given about AE for the purpose of choosing which employing entity they contract with. In other words, if the agency just keeps quiet about the difference in AE staging dates because it prefers the Sark option, and the interviewee doesn’t ask the question, it’s not immediately obvious what compliance action the Regulator could take. The offences of failing to comply (section 45ff of PA08) are pointed at a wilful failure to auto-enrol or allow opt-ins, which the agency won’t have done if it isn’t the employer.
Certainly there’s a case for TPR, HMRC, the unions and maybe the press putting pressure on the agencies to make fair disclosure, and perhaps the DWP/unions should be encouraged to alert teachers/supply teachers to the issue. You should get Steve Webb on the case, making some statements about it!
Thanks Helen! You’ve really helped my understanding and I hope that the politicians and civil servants who read this and the comments on www.henrytapper.com will take some action to make sure that contract workers being offered short-term cashflow advantage
in exchange for long-term financial loss will have the options properly laid out
Three months later and it looks as if this prayer was answered http://www.bbc.co.uk/news/uk-21812596
It looks as if the Government are going to clamp down on the practice of offshoring onshore contract work. The article does not specifically mention the implications for pensions but we’ll be pushing to make sure that those eligible for a company contribution under auto-enrolment are given an immediate opportunity to join a workplace savings plan as if they had been working with an onshore contract (bearing in mind most of these workers are grouped around a few employers- that should mean some day soon).
- ISS – confused? – I am! (henrytapper.com)
- Schools warned over supply teachers (standard.co.uk)
- Agency Based In Sark Not Paying NI Contributions (ukgovernmentwatch.wordpress.com)
- Now supply teachers are caught in offshore tax row: Taxpayers ‘lose millions because staff are employed by foreign firms’ (thisismoney.co.uk)
- Workplace pensions: A guide to auto-enrolment (confused.com)
- Payroll follows member! (henrytapper.com)
- Auto-enrolment;- the story so far (henrytapper.com)
- How will employers chose their pension plans? (henrytapper.com)
- Offshore payroll companies – a (pensions) scandal in the making? (henrytapper.com)
- Now supply teachers are caught in offshore tax row: Taxpayers ‘lose millions because staff are employed by foreign firms’ (dailymail.co.uk)