In it I stated..
‘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‘.
A very good lawyer, Helen Powell of Allen & Overy has, pro-b0no looked into this and has made the following comments…
Part of that conversation therefore ought ..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!
If you followed that, then you’ll see that were the 24,000 staff working for ISS seen as working for a single agent under PAYE, they would be enrolled at the staging date for PAYE payrolls of that size – eg at the latest February 2013. This is the “x” in Helen’s comment.
In practice the ISS workforce probably come from a number of agencies and x may be later in the staging Calender but the fundamental point is the same.
The agencies are under no obligation to warn their staff of the consequences for their pensions of moving to an offshore contract. Even if the agency chose to phase in contributions and use the most parsimonious contribution scale, the amount forsaken by a contract worker – especially a well paid one like a teacher – would be substantial. They could be losing over four year’s contributions and some of the most valuable contributions too.
So what can be done about this? Today the likes of Google, Amazon and Starbucks are going to have to answer tough questions as to why they are trading in the UK but paying tax as if they traded offshore. The issues raised by the BBCradio5live documentary are being tagged onto this wider debate.
It is time that steve Webb and/or Gregg McClymont took the lead on the pension avoidance issues since the Pensions Regulator have been very specific about what the new employer duties will be. There is an opportunity here for pensions people to do contract workers a favour that extends well beyond pensions as it looks absolutely certain to me that many supply teachers and other contract workers are exchanging some meaty entitlements in other areas for a few quid cash in hand.
The solution is simple. To put the legal liability for explaining the implications of the choices on the agencies and making it perfectly clear that if they don’t , they will be exposed to potential class actions from employers of the PPI variety.
This does not need to be sorted out by primary legislation. It needs some sensible financial education and some smart political action. A quick win for a Government that is clearly looking to include and not exclude workers auto-enrolling.
- Offshore payroll companies – a (pensions) scandal in the making? (henrytapper.com)
- ISS – confused? – I am! (henrytapper.com)
- Is auto-enrolment working? – November Play Pen lunch (henrytapper.com)
- NAPF Conference Report (from our man not on the spot) (henrytapper.com)
- Schools warned over supply teachers (standard.co.uk)
- RT @Independent: Schools warned over use of supply teachers http://t.co/CqT9C6lR [del.icio.us] (independent.co.uk)
- What do we mean by good? (henrytapper.com)
- Now supply teachers are caught in offshore tax row: Taxpayers ‘lose millions because staff are employed by foreign firms’ (dailymail.co.uk)
- PAYE: A small business guide (xlntelecom.co.uk)
- State school supply teachers employed by tax-avoiding firm (schoolsimprovement.net)