Mixed fortunes for recruiters in 2012 - City Comment

As the year draws to a close, Christmas lights are switched on and I panic about which present to buy my wife, this week we cast an eye over 2012 and focus on the main share price winners and losers.

In the UK, despite a stagnant economy and fears of a double-dip recession, recruiter share prices have rallied during 2012 with a leader board headed by SThree (+31%) and Robert Walters (+20%). Hays (+15%) leads a well populated second tier, which contains Impellam (+13%), Matchtech (+12%), Empresaria (+12%) and Hydrogen (+11%). Hydrogen was on track to post an almost 50% price increase before an unfortunate profit warning wiped 30% off its shares in November.

An old stock market adage – a share that has fallen 90% is one that declined 80% and then halved – comes to mind when looking at the UK laggards. Despite experiencing a whopping 97% share price decline in 2011, Healthcare Locums has plummeted a further 33% so far this year after it was felled by a profit warning in the summer. Michael Page (-3%) is the worst performing of the industry bellwethers.

Overseas, Adecco (+9%) was the pick of the bunch among the generalist staffers after it announced in July that the company would buy back up to €400m (£323m) of its sharesas management believed the price was too low. To date only around a quarter has been purchased. Elsewhere, Dutch recruiter Brunel’s shares have rallied by an astonishing 51%.

In general, most recruiters had a satisfactory start to 2012. However, June was a very challenging month in part due to UK Jubilee celebrations. This was particularly unhelpful for Michael Page as June is normally its biggest revenue month of the year. 

The pace of profit warnings gathered momentum and by early summer they came thick and fast with Matchtech and InterQuest warning in August, and Michael Page suffering three downgrades in three months throughout late summer and early autumn.

There have also been some interesting personnel movements during 2012. Charles-Henri Dumon departed from Michael Page. Royston Hoggarth exited Hays and was replaced by Nigel Heap. Russell Clements disclosed his intention to retire as chief executive of SThree next year.

Merry Christmas and, if new opportunities await you in 2013, a prosperous New Year.

Recruiters hit back as pressure builds on expenses schemes

As critics of expenses schemes prepare for an Early Day Motion in parliament in an attempt to have measures to outlaw them included in chancellor George Osborne’s Autumn Statement on Wednesday, recruiters and others working in the recruitment sector have voiced their concerns that all schemes, both good and bad, are being tarred with the same brush. 

And they have called for greater clarity from the government and HMRC on how to operate schemes compliantly rather than their complete eradication.

Steve West, managing director at recruitment solutions firm Pertemps, tells Recruiter: “While the public debate has focused on tax avoidance schemes allegedly operated by businesses aligned to the recruitment industry, there are many compliant UK businesses who operate genuine schemes.”  

West says that one such scheme is Pertemps’ own Mobile Advantage Plan (MAP) where the employer reimburses expenses incurred by temporary workers under arrangements agreed by HMRC. Pertemps’ own internal audit team and HMRC regularly monitor and audit the MAP scheme, adds West. 

“A consequence of MAP is that the worker receives tax relief on expenses when they are incurred rather than completing a complicated tax return some months later. Expenses are limited to travel and food (subsistence). Strict rules outlined by HMRC means less than a quarter of our temporary workers are eligible for this relief.

“We will not contract with any business found to be operating such schemes that do not have full HMRC approval,” says West. 

A spokesperson for Adecco Group tells Recruiter: “We welcome the HMRC initiatives to clamp down on tax avoidance schemes.

“At Adecco Group we take our responsibilities as the UK’s largest recruitment business very seriously and always comply with the prevailing laws and regulations. In addition, we are in regular dialogue with the HMRC to ensure that we comply with their latest guidelines.”

The spokesperson says that Adecco’s travel & subsistence scheme is approved by HMRC and has recently gone through an HMRC audit. 

“As a matter of course, individuals will join such a scheme only if there is a positive impact on their net earnings potential,” adds the spokesperson.

Adecco has “a thorough process of vetting all umbrella companies we work with and manage an approved list of such companies who have passed our vetting procedures”, says the spokesperson, and this includes vetting them for compliance with the UK employment taxes regime, and national minimum wage legislation. 

As recruiter.co.uk went to press Adecco had not responded to our question as to whether the scheme was operated in such a way, that in addition to “a positive impact” on the individual’s net earnings, it also had a positive impact on Adecco own earnings. 

Greg Latham, managing director of blue collar and engineering Encore Personnel, tellsRecruiter: “This could be an industry-changing moment.” There are question marks about the future of “aggressive schemes” and whether some will close, he says. 

“What will be interesting,” he adds, “is if there are closures, what will happen to the business models adopted by the agencies who have used them for the last few years?” He emphasises that Encore has never operated ‘pay day by pay day’ travel expense schemes.

Gary Butterworth, managing director of umbrella company Zeva, which runs a ‘pay day by pay day” scheme for its own workers, tells Recruiter that the current climate of hostility “is generating a mistaken belief that all tax relief models are immoral and take advantage of the worker”.

Butterworth argues the animosity towards such schemes “is obscuring the reality” that, if operated correctly, ‘pay day by pay day schemes’ “can be beneficial to national minimum wage workers”. 

“They increases workers’ weekly take home pay by applying the personal tax relief to which they are entitled on travel and expenses incurred – thus reducing the amount of national insurance and income tax the worker is required to pay. It also increases the amount of working tax credits a worker is paid by deducting these expenses from their income prior to calculation,” he explains.

Butterworth accepts that a number of travel & subsistence schemes are currently exploiting low-paid workers, adding that “it is right and fair that these schemes be eradicated”.

Stewart Davis, director of multi-sector recruiter Three Way Solutions in Yorkshire, tellsRecruiter that one of the problems is that most people in government don’t understand the recruitment industry. “We have to get them to understand we’re a viable, good industry,” he says, adding that recruiters and all trade/professional bodies need to join forces to obtain clarity and guidance from HMRC about the right way to deal with this issue.

John Chaplin, employment tax director at Ernst & Young, tells Recruiter that in the current climate there is a danger that all travel & subsistence schemes, both compliant and non-compliant, are tarred with the same brush. And he says he is concerned that organisations that are perfectly compliant will remove the tax relief from their workers, while “those guys who are non-compliant” will continue operating in the same non-compliant way. “That is the difficulty,” he adds.

Stuart Davis, chairman of FCSA (the Freelancer & Contractor Services Association, says: “The legislation does exist to clampdown on these illegitimate practices and the FCSA urges HMRC to show its teeth and exercise it now. If it doesn't, we risk new knee-jerk one-size-fits-all legislation being imposed upon the flexible workforce, which is a highly diverse group and therefore cannot be governed by blanket legislation. 

“For example, if all tax-free expenses are removed in order to crackdown on salary sacrifice schemes, members of the flexible workforce who claim legitimate expenses will be severely penalised. Put simply, blanket legislation might protect one group while stifling another.”

Manpower declined to comment. As recruiter.co.uk went to press, Kelly Services and Reed had not responded.

Minimum Wage

The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid. The rate depends on age and whether the worker is an apprentice. The new rates will come into force on 1 October 2012, as follows: £6.19