Sunday, 16 December 2012

Tax, engagement and the Interim.

 In the UK the public sector is being lambasted by the media for employing so called interims complaining that tax is being avoided and these guys should be employees.

Let us remember that avoidance of tax isn't illegal, the media seems to forget that.

There is poor understanding of the issues involved and a lot of knee jerk reactions are being voiced on TV and late night chat shows with little substance behind the rhetoric.

The interim manager, a phrase that means lots of different things to different people, is under scrutiny at present from many different perspectives. The term and definition of an interim is actually is the source of the problem - it is just so poorly understood not just  by the media, but by interims themselves which doesn't help us here.

The contractor/interims, again overlapping and highly debated labels, fight back with claims of running their own business and the need to transfer fees from active assignment to marketing periods and the like.

There is clearly a difference from people employed on short term assignments, short is also debatable - is two years short?  who operate within the organisation as a controlling person making decisions and implementing commend compared to a consultant working on a project for a few months maybe in parallel with other client work.

The former are employees really, ducks and quacking come into mind here, but what goes amiss here is the lack of understanding of the costs those individuals have to maintain to stay engaged.

The fixed term contract option fails to allow the hotel bill to be offset against tax and the cost of operating way from home is a serious issue as most of this work never seems to be in one local area London excepted . MPs seem to get funded to work away from home don't they?

The tax man then gets the income tax and NI as an uplift on the expenses i.e.  a hotel bill gets paid from taxed income and either the rate to the client has to go up to accommodate the situation or in more likely reality the employee, sorry interim, suffers. The answer here has to be that the fixed term contract must pay a salary through PAYE that fits the costs and situation of the temporary member of staff, if of course we are going on with this definition.

Many H.R. managers seem to think that they can pay the same salary as they would a permanent employee forgetting the engagement commitment and feel good factor of belonging with some degree of longer term commitment. Fixed term contracts from the contractor/employee point of view are the worst option possible. No commitment beyond the term with no ability to transfer income to new business work after the event or protection of expenses.

This is a complex subject and the variations and issues are so diverse one stop solutions and over arching tax rules fail to address the problem with sufficient care. For example individuals sometimes take interim positions, sometimes take contracts, fixed term or day rate through service companies  and sometimes trade with multiple clients simultaneously. Thus people are interims, contractors employees and freelancers at different points on the timeline. The employment status changes from one from to another; this is not easy for individuals or the tax-man.

The current media frenzy on this matter is going to change the shape of the interim contractor landscape in 2013 no doubt. especially in the public sector. Like everything in life a minority have stretched the rules and unleashed a fire storm for which the majority are now paying for with interest!

All this is not helpful to true freelancers trying to eke out a living in difficult times with pressure on rate and clients trying to get value without paying for it properly by leveraging the difficult market to their own benefit.

"Heh Fenester. what's your definition of a freelancer!!!" :-)  Doh.....

Tuesday, 4 December 2012

Rush to Regulate

The media rushes to push for regulation on the premise that it protects the consumer and that corporate bodies and entrepreneurs  are evil and need controlling. Regulation is set out as a good thing and something to aim for in one industry after another; it is portrayed as good for the customer.

However there is another side.

Regulation cost money, a lot of money, this ultimately rises costs for everyone and the consumer has to pay for it. Whilst in recognising that some companies have been under hand in their dealings with the public and regulation as been the response as a result the cost to the majority of the behaviour  minority is huge. It is a bit like regulation being like an insurance policy, we all pay more to cover the eventuality of bad practice , or an attempt to prevent it in any case.

Regulation actually diminishes the customer experience - how?

Well you hear so many people complaining about inane scripts and pre-recorded messages and bundles of "pointless" fulfilment material; this is not always the providers fault, in many cases it's the result of compliance with regulation.

In a globalised market our localised regulation in staffing matters raises our costs and makes us uncompetitive. No wonder much of our processing activity was off-shored. Lots of people complain about the service that arises as a result.

On the up side compliance and regulatory matters have kept us change professionals in supplies and rations during the recession as mandatory change activity was the only work around!

So am I saying regulation is a bad thing?

No, people should be protected particularly from being exploited in employment but when the playing field isn't level the reality isn't that simple. The message here is regulation has  a place but it has to have its consequences thought through.

Let me finish off with an example of unintended consequences which illustrates why we need to think regulation through properly before jumping to knee jerk regulatory responses to problems:

A very well known university town council in England decided to regulate private rented accommodation that was shared; it required licenses and stipulated higher safety requirements including separate fire proof doors to bedrooms and the like.

All good stuff I hear you say but:

The stock of accommodation in that city has reduced substantially as landlords now only rent to families not shared groups, many don't want to incur the costs or ruin the look of their feature filled Victorian housing stock.

Sharers are being turfed out as their current rental agreements come up for renewal and then have to pay higher rents as the supply has substantially dropped and landlord recoup there extra expenses from this regulation and also benefit from increasing prices as the scarcity of their product has increased as a result. This on top of higher university fees is another blow to students and young professionals in the town under discussion.

Rents have gone up as a consequence and the house sharing young people foot the bill.

The same houses with no safety enhancements are now populated by families instead, the stock is the same standard not any safer either. The prices for licensed properties for young people have gone up with little benefit to anyone except the regulators and bureaucrats who charge the fees for the license, perform the inspection and administer the scheme. If a house is safe for a family, why is not safe for three young adults to live in?

The issue here is people with good intention, politicians and public employees, have little commercial knowledge and don't think through the business model that sits behind the regulation. This needs skills in business design and requires the skills often seen in disciplines like business architecture.