smallbusiness.co.uk: Helping your business think big

The recent sacking of 850 agency workers by BMW demonstrated how companies use non-permanent staff to protect themselves in a turbulent economy. But you need to know the pitfalls before hiring temporary workers.

Simon Clark, MD and co-founder of management consultancy CVL, had to lay off permanent staff eight years ago ‘when the economy wobbled’. After that difficult episode, he made the decision to maintain a ratio of three or four non-permanent staff to one permanent. CVL also has a pool of 200 freelance consultants.

‘This is not just [to help] cash flow, it’s because people have specific skills that we might want for a short period of time,’ explains Clark. ‘It helps us minimise downtime, which is the death of our business.’

The attractions of temporary workers, especially in the current climate, are obvious, but there are potential pitfalls to be sidestepped. Dilys Lloyd, a partner at law firm Eversheds, says that making people redundant then immediately hiring temporary workers is a dubious policy.

‘The people who were made redundant may argue there is still work and they should have been offered the opportunity to do it on a part-time basis,’ says Lloyd. ‘That could provide grounds for an unfair dismissal claim.’

Not so fast - IR35 and other impediments to hiring contractors

Gill Hunt, MD of Skillfair, an “online marketplace” for contractors, points out that contract staff own the intellectual property for any work they do unless their contract states otherwise. Another problem she highlights is a piece of legislation known as “IR35”. This was intended to crack down on those contractors who avoid paying tax and national insurance (NI) contributions by claiming to be self-employed. Unfortunately, it’s caused chaos inside many companies that use freelancers, which have been targeted by HMRC for “missing” tax and NI.

The solution, according to Eversheds’ Lloyd, is to make your company’s relationship with its contractors crystal clear. Is the relationship with a contractor who provides their own equipment, sends invoices for payment and takes financial risk? Or does the contractor work on your company’s equipment under your direction, and receive a payment that looks like a wage?

Lloyd adds that permanent, nonpermanent, and agency staff all need to be treated differently to make sure the boundaries are not blurred and everyone is clear what their rights are.

That doesn’t mean non-permanent staff should be treated worse than your core team. CVL’s Clark says he’s worked hard at making sure the company’s freelancers feel valued. ‘We have a monthly breakfast, a monthly newsletter, a quarterly networking event and two social events a year,’ he reveals, adding that treating people a little bit better pays dividends in the long run.

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