The annual Recruitment Industry Trends report for 2017/18 was released in December 2018 and demonstrates UK agencies’ dependence on freelancers, contractors and temporary workers for the vast majority of its income.
Findings from ClearSky’s partner, The Recruitment and Employment Confederation (REC), show the recruitment industry grew 11% in 2017/18 and now boasts a record turnover of £35.7 billion, despite the economic challenges and uncertainties posed by Brexit.
Of this turnover, £30.85 billion (86%) was generated through contract and temporary assignments, which totalled more than 1 million agency placements on any given day. The 1.1 million permanent placements made in 2017/18 accounted for the remaining £4.84 billion (14%).
Freelancers and contractors have consistently made a vast contribution to recruitment revenues in recent years. In 2016/17, these workers were responsible for 87.5% of the industry’s turnover, which was a significant jump from the 76.1% of earnings temporary workers made recruitment in 2015/16.
What’s more, REC revealed that in 2017/18, the average annual turnover from each contract worker on assignment grew 20% from the previous year, to £34,976.
Supporting these figures is the change in the way people work. The UK’s 4.8 million self-employed people now account for 15% of the workforce, and recruitment is one of the many industries that has benefited significantly from the rising demand for contract workers.
This growth hasn’t come without its challenges for recruiters though. The introduction of IR35 reform in the public sector last year meant that agencies had to adapt. Changes to the rules around engaging contractors mean that when a recruitment agency is in charge of paying the contractor, recruiters are now financially liable for any mistakes made when setting IR35 status.
Being placed inside IR35 incorrectly doesn’t sit well with contractors either. When working under IR35, individuals are taxed at a similar rate to employees but are not entitled to any employment rights. And so, operating inside IR35 isn’t usually in the interests of contractors. Consequently, for recruiters to be able to continue attracting these workers, it’s become increasingly important that they are able to place contractors in roles deemed outside IR35.
After the recent confirmation of private sector IR35 reform, set for April 2020, agencies placing contractors in the private sector need to also take this responsibility seriously. It’s thought that when recruiters are the ‘fee payer’, they will hold the IR35 liability when changes are introduced next year, much like in the public sector.
However, recruitment’s £3.5 billion growth in turnover in 2017/18 is a sign that agencies are agile enough to evolve, according to REC’s Chief Executive, Neil Carberry, who praised recruiters for “adapting swiftly to changing times.”
Even so, with IR35 reform arriving in the not too distant future, the recruitment industry is under pressure to react once more. Helping make sure contractors have their IR35 status set correctly by a client is in an agency’s best interests. Contractors are more likely to work through them and the agencies will ensure they remain compliant.
This is something the 30,430 of recruitment businesses that opened their doors in 2017/18 will need to bear in mind. REC reported a 10% increase in the number of agencies in the industry, which works out at around another 115,000 people entering recruitment. The association puts this figure into perspective by pointing out this is enough faces to fill all the seats and the pitch at Wembley Stadium.
As a result of incoming tax reforms, Brexit uncertainty and political unknowns, the recruitment industry isn’t predicted to grow at the same impressive rate in the next three years. Nonetheless, REC has forecasted a 4%, 4.5% and 5% turnover increase in 2018/19, 2019/20 and 2020/21 respectively.
Despite the challenges that lie ahead, REC Chief Executive, Neil Carberry, has confidence in recruiters to prosper. He stated: “The path ahead is uncertain – Brexit, immigration reform, tax changes, technology. But this report shows that recruiters can look at that uncertainty and see the opportunities.”
The reliance recruiters have on contractors is evidence that when looking to capitalise on opportunities in 2019 and beyond, agencies should focus on these workers and more specifically, their IR35 responsibilities.
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