What’s it for?

The general principle is that permanent employees should not receive better pay or benefits than workers supplied though an agent.  So how many times has this happened?  I don’t know.  Nobody does, but in the same way that the fallout from “Cockle-Picking” handicaps decent businesses so AWR adds another “business prevention” layer.  If a business is not reputable I really can’t imagine this legislation will make an ounce of difference.

When will it happen?

It came into force on the 1st October 2011 so like many of my recruitment colleagues I have spent weeks trying to find out who now does what, and why, and do you know what?  There is no clear answer.  Like its close interbred cousins before, IR35 and the snappily titled “Conduct of Employment Agencies and Employment Businesses Regulations 2003″, it has all the hallmarks of a sledgehammer to crack an egg-shell, let alone nut.  It seems that we are all presumed guilty until we can prove ourselves innocent.

Who must do what?

At this stage I apologise to both our clients and candidates alike; we, and all other reputable agencies, will now need to keep more documentary evidence of each role we source.  Of course, if you are not reputable then please skip to the end and don’t read the next bit, but as all my clients are reputable I will be alright!  Yes?  No, not a bit of it.

So what is in and what is out?

The magic cut off time for any role is 12 weeks; it seems it’s OK to exploit workers for up to 12 weeks, but no longer.  It’s also OK if a role is not caught by AWR.  Ah ha, the IR35 test again?  Sort of, but not quite; certainly the acid tests of advisory and professional services apply (and it really has to be ”advisory” or “professional” this time), but any hint of “direction, supervision and control” by the client could blow that out of the water.

As the key to this is ensuring that agency workers get paid at least as well as permanent people I expect to see many spreadsheets being produced.  The real problem lies in bonus payments.  If a permanent worker is paid on productivity (number of phone calls made, number of complaints handled to certain levels, projects delivered on time and to budget) then how do you wrap that into a day rate for an interim manager?

What does this all mean?

This legislation seems to place the onus on us intermediaries to decide if we think that a client is about to exploit an interim manager (that’s my market, not the minimum wage end) and I can’t help wondering if HMRC is also trying to get more people caught by IR35.  So we will need to delve into the pay and rations for comparable roles and seek confirmation from candidates that they are happy.  We will also have to make sure that clients know how to treat people fairly (I am keeping a straight face here, really). In a nutshell, this is all about flexibility:-

1. We hope that clients will be flexible in how they engage with people; flexible job descriptions defining roles that are more akin to “professional services” will produce a better candidate list;
2. We will need to seek confirmation from our clients of how the pay/perks for a role compares with permanent equivalents;
3. We will need confirmation that “Day 1 rights” are equal;
4. Whilst candidates can’t “opt out” from the various pieces of legislation, they will be looking for flexible and consultative job descriptions with them as a professional service provider;
5. Interim managers will need to work through their own personal service company (that’s reasonably standard anyway);
6. We will need more detailed confirmation from candidates that their day rate includes calculations for pensions, cars, sick pay, holiday pay and down-time.

A slight fly in the ointment now is that some umbrella companies say they will offer to indemnify intermediaries and clients of any claims made for equal pay/benefits, that will need careful investigation as the advice thus far has suggested that Umbrella companies are to go the way of Managed Service Companies

Groan

It is pretty hard to argue that any interim on £500+ per day could be exploited, but you just don’t know do you?  I am left wondering again why the law cannot be targeted at the people who abuse it and not soft targets.

Do clients want it?  No; reputable ones offer interim managers very fair day rates anyway.

Do interim managers want it.  No, they are quite capable of working out the price of a fair day’s pay for a fair day’s work.  One person I talked to said that a true interim manager will never invoke it as they will show they are caught by IR35.  Meanwhile, we must show that we offer interims who choose this as a way of life.  Please don’t ask how an interim gets his or her first assignment or three then!

Do intermediaries want it? Er, no.

Who are the winners?

Lawyers, barristers and HMRC.  Maybe one or two people on the minimum wage in a few years time once there is some case-law.   I will be surprised if anyone over £400 a day (probably lower) wants this, but that’s just my view.

What’s likely to happen?

My guess is that we will see a lot of high level job descriptions written so that they are outside the terms of AWR which will remove the problem.  There will be a greater “risk based” approach to the placement process which will inevitably have some impact on price.  RPOs will change as they become the hirer and assume more liability (no bad thing!) and the market will shift again so that volume suppliers have more of the middle to lower ground and traditional providers move further up the chain.

The End?

At some stage there will be case-law, in the meantime this is the blind leading the blind.  My advice to you is to get your own advice on this, don’t rely on mine as I’m one of the blind enlightened by slightly richer lawyers.

We all have to bear with this, we can’t ignore it and the obvious thing to do is to find a pragmatic solution in each case.

My last observation is that if this government wants small and medium-sized businesses to lead a recovery they should not bury us in red tape – getting any sort of understanding about AWR has taken weeks and will add hours more to a recruitment process.

Let’s hope that this Red Tape day is not a Red Letter day for helping our reputable clients resolve their unavoidable resourcing problems too.

“Beware Greeks bearing gifts” and “don’t look a gift-horse in the mouth” are two conflicting statements that we wheel out to support whatever argument we are making at that time.  We’ve all done it and we’ll all do it again.

Hiring people you have worked with before is known, but what about “friends of friends”?  In 2008 we released an article called “Why you should not hire a friend of a friend” based on our experience of clients coming to us for help in rescuing situations that should never have arisen and all caused by hiring without going to the market.  Just think of the list of people who would have been well advised to read it before they made career threatening choices: The Labour Party elected Gordon Brown, David Cameron hired Andy Coulson and Ed Milliband took on Tom Baldwin to name just three recent high-profile examples – each reputation tarnished because of the totally avoidable mess they have had to mop up.

It seems really easy though doesn’t it.  The Financial Controller leaves, someone has a friend who is available now and who was in the finance department of a local firm; one meeting, a cheap and quick hire of someone who can start on Monday!  Job done.  But why is he available now?  What did his former colleagues think of him?  Well it doesn’t really matter does it; he was a victim and, anyway, Joe knows him and Joe’s a great bloke!

2008 was, really, the beginning of this recession when there were some quite savage cuts; labour was in abundance and jobs were at a premium.  The cheapest way to save money on any transaction is to cut out the middleman and go direct, recruitment is always hit.  But if ever there is a false economy it is “going cheap” on hiring.  Picking up the pieces of a poor hire that is avoidable by looking at what skills are available in the market and referencing people properly is far more expensive.  Formal references rarely expose anything; in 14 years I have only ever had one candidate give a referee who had anything bad to say about them.  Informal referencing is key, so you need someone with a good network to find out how people work as well as what they have done – the words in italics matter.

The parallels with the economy now are uncanny, and once again we are starting to receive calls from clients who need interim help to dig themselves out of holes they could have avoided.

Why do people still do it then?  I suspect, as well as these being austere times, it is because our industry has been very bad at articulating a value proposition (protection?) for a thorough recruitment process, whilst hiring a friend of  a friend is free; what other reason could there be for neglecting to investigate the market for important vacancies?  Such is the general cynicism of the recruitment world that Oscar Wilde could be forgiven for defining a cynic as someone who “knows the price of everything and the value of nothing”.

OK, I know that there are some recruitment horror stories and that value for money is questionable on occasions.  After all we are a service industry, quality of delivery defines the value of the service which is open to personal interpretation; poor service is especially noticeable.

What is equally true is that high quality service does, more often than not, give high value; the challenge to our industry is quantifying that value up front.  At Burden Dare we back our judgement, we are creative on pricing and really tailor service to customer needs; such as we have offered to link our fees to the benefit delivered by our candidates, in that way our candidate pays for his or her own recruitment.  So don’t be afraid to discuss value the next time you hire, that will be an interesting conversation.

What, then, is the cost of repairing the friend of a friend hire?  In 2008 the average cost was about £300,000 (the damage to the business plus the cost of a 6 month interim assignment).  The average benefit delivered by the interim manager recovering the situation was in excess of £400,000.  You might think that a £100k return on £300k is a good return in 6 months.  But if the average interim assignment delivers £250k value in six months just think how much better it would have been if a good hire delivered value from Day 1?

So, please do bear this in mind: There’s no such thing as a free lunch.  Beware Greeks bearing gifts and please treat this blog as a gift-horse!  Don’t look it in the mouth.

This may have once been true, but now interim management is fast becoming a career of choice for the most successful managers and former consultants, particularly those who are action oriented.  Successful businessmen and women, usually disenchanted with corporate politics or promoted successfully up and away from a role they really enjoy, are increasingly turning to a more flexible life as an interim; today many have Big 5 training.

There is, however, a distinct difference between specialist interim managers and consultancy employees acting in an interim capacity.  Here’s how we see it.

Why use Management Consultants?

Many companies use back-fill resource from consultancy firms because it’s easy and familiar.  We all know the joke “lend me your watch and I’ll tell you the time” but consulting firms can rapidly mobilise teams of people to solve complex issues and if the project needs more resources they can usually offer them too.  They take the problem away from the company and provide one solution: – but at some cost.

Why look at Interims then?

In a recession value for money, accountability, objectivity and timeliness are key drivers which constrain existing resources and lead to searches for alternatives.  Interim management is the alternative and in many cases a better substitute. Interims usually have more hands-on experience; they focus on delivery and cost considerably less.

Interim Managers

True, interim managers are self-employed; as such they are accountable for their own actions and trade on their own reputations.  The client interviews candidates and decides who should deliver the assignment.  The interim manager does what the client needs and only has the client’s best interest at heart.

The advantage of the self-employed model is that interim managers are only as good as their last job, so only the best survive as the reputations of both the interim manager and the interim provider are paramount. Interim service providers will have a large talent pool to choose from.

Typically an interim manager will have a minimum of 15 years business experience and a demonstrable track record of delivery and success.  Frequently they will also have worked for one of the Big Five management consultancies and have direct experience of delivering advisory services as well as line management.  Once a consultant leaves a consultancy, the client can hire exactly the same person at about 50% of their earlier fee, less in some cases.

Management Consultants

Candidates presented by a consultancy or systems integrator are their employees.  They trade on a brand and are paid by and accountable to an external manager.  Frequently, they are also encouraged to focus on sell-on work, to increase revenue for their employer.  After all, that is the company which pays their salary.

There are two main implications of this employee model. Firstly, a consultancy has a more limited pool of talent to choose from, perhaps up to 300 people but across all grades which gets depleted when they are busy.  The best consultants go out on assignments first which reduces the choice even more for clients unlucky enough to be further down the queue.  Secondly, clients rely heavily on the consultancy brand and often do not, or are not allowed to, take part in the candidate selection process.

Consultants often join a consultancy straight from university.  While they work in many environments for different clients they are much less likely to have recent line management experience or to have been accountable for implementing their own ideas.

Horses For Courses Then

The traditional arguments of consultants being “a safe buy” do not now apply to low volume or singular line roles.  As consultancies move into larger projects they are less keen on providing their best staff as secondees to even their most valued clients.

By contrast, the track record of interim managers becomes stronger by the day as the best exceed the needs of their clients.  The biggest issue a hiring company has is finding a reliable interim provider.

Well, you need look no further!

Luka Modric and Gareth Bale, arguably two of the best players in the premier league, have discovered that they enjoy playing the game at the highest level and on the biggest stage.  The only surprise is that anyone IS surprised by that at all!  But what about club loyalty I hear you cry, Spurs took massive gambles buying each of them, surely they have a debt to repay?

This sticky situation hits the headlines for two main reasons, assuming you ignore tribalism in football for one moment:-

1. the vast sums of money involved
2. the rather grubby public perception of football agents, bungs and alleged double payments

Well, how does that compare with the “Real World” we recruit for?  As executive search specialists our job is to find and place an expert from a competitor for our client.  Top talent will move from one business to another for more money or greater exposure on the world markets (or both).  Businesses become successful because their leadership set strategy and managers execute it, just the same as football, so what’s the difference?

In our world, just about every employment contract has a notice period, a get out clause that suits both parties, we are only paid by the client and there is no transfer fee paid to the donor company.

Football clubs “own” players, there is commercial value in an employment contract that can be enforced.  So Daniel Levy (Spurs’ Chairman) could make Luka warm the bench for a couple of years or more at relatively low-cost (a mere £45k a week) and still get his money back!  In our world a disaffected employee can hand in their resignation and leave after their notice period; OK, they might take gardening leave but then again they might have a challenge in court if they can prove constructive dismissal because of a new hire, rather like a new football player in the same position!

So which is the better business model?

Don’t you think it would be fun to see how big business would work if the hiring company had to pay a transfer fee to the donor company for poaching staff?  Who knows, it might force companies to train their staff more.

Don’t you think it would be fun to see how Luka would work 12 months notice before moving to Chelski?  It might make him think about making inflammatory statements about where he wants to work and it would certainly make football more economical.

Ignoring all the obvious pitfalls and objections, I rather think it might be fun to see how that might work out!

We love the red hot news this morning that we, the public who have bailed out the banks, should become part owners in a grand gesture designed to restore our faith in the Financial Services Sector.  This seems wholly justified as every family has apparently contributed over £5,500 of our taxes to the rescue and we are taxed to the hilt as a result.

At the outset the average family will not quite break even but in the medium to longer term we expect both the public’s faith and, through that, the banks’ profits to return even if we won’t be able to retire to the West Indies on the profits.

One thought, as the bankers all seem to have been able to pay themselves bonuses as a result of our largesse, perhaps Cleggers might go one step further and exclude bankers themselves from any share distribution?

Our government wants growth to come from the private sector in particular and they seem frustrated that our state-owned banks are not meeting lending targets.  But wait, the banks all say they have money to lend; so what’s going on?

As a bit of background, I was a bank manager when it was fashionable to lend money with a view to getting it back and I now run an executive recruitment business that you can safely describe as a Small and Medium Enterprise (SME), so I have seen both sides; let’s explore them a little.

The SME marketplace for banking services is curious.  By its very nature SME owners are entrepreneurial; people take on a massive risk when they start a business.  Banks are conservative, well they were when the system worked properly; they invested millions in staff colleges, they held three-month long residential training courses making sure their managers could understand business owners and the dynamics of their businesses so they could lend properly.  Banking was a “people business” supported by thorough analysis, and it worked (we can have a separate blog on bad lending later).  This was the Golden Era of banking.

Then the banks gobbled up independent finance houses first, and then each other and now they have the appearance of an oligopoly (allegedly).  Can you tell any real difference between the few remaining banks?  The only surprise is that anyone is surprised by this, least of all successive governments who allowed and, indeed, encouraged it!

Customers used to have much more choice, products were simple in design and they had to be keenly priced.  You try getting an unsecured overdraft now on “Balance Sheet Lending”!

I started my first SME in 2001.  I opened the doors, no business, I made one phone call to an old bank colleague and got agreed an Invoice Discounting line for £500,000 at a very reasonable rate – all inside a week and with no security other than a debenture over a brand new business – interim managers, to be placed on contract; these are perfect businesses for invoice discounting because the debts are “blue chip” at my end of the market.  That really helped me grow the business and I sold it in August 2007 with an impeccable bank track record.  I started Burden Dare with the sale proceeds to fund my working capital.

For reasons unknown to me, I became classed as a “Large and Complex Business” (wow!) by the same bank.  Last year after three years of trading, my bank manager (the same one) who was cast in the mould of that Golden Era, asked me to look at debt finance again so he could meet his targets.  Remember, they were asking me to take one of their products!  So I agreed to look into it thinking he had my best interests at heart.  And now we get to the juicy bit.

They told me that they would lend, but only via Factoring (which means I would have to tell my clients), and at three times the price they quoted my brand spanking new business 10 years ago!  The sales guy I spoke to clearly didn’t understand my business (though I did speak to someone later who did, but he was one step removed), he was pushy and he didn’t understand why I was against using Factoring (it’s a stigma); there is no way they would “sell” me Invoice Discounting – and they wanted a guarantee!  Cheek!  Remember, I didn’t ask for this!  I think I used words like insulting when asked for feedback.

This exercise was all about meeting targets and rebuilding the bank’s balance sheet and I am damned if I will do it.

So, David Cameron, if you want to get small business working for Britain this is what you need to fix:-

• stop worrying about breaking up banks; you will not win, SMEs and OAPs will lose
• banks need people in the front line who understand business; you don’t teach a car sales rep about cars when you buy one
• banks need more competition – perhaps a state-owned “Commerce Bank” (you have 2 to choose from)
• they need to be told not to rip off their customers; more competition and proper risk pricing
• they need to realise they provide a service to customers; not vice versa, there’s a novelty!
• and then you need to address red tape; oh, that’s another blog!

Is it any wonder that cash rich small businesses keep money on deposit at derisory rates instead of firing up the country?  I think not.  And you can fix it!  In the meantime………

….watch out, here comes the rain.

It is summer, allegedly, and the cricket season is well under way.  That’s just as well because the economy, at least in recruitment terms, is quiet so my mind has wandered, thinking about the news stories that really affect me.  I guess this blog will start slowly and with much trial and error, no doubt; I hope we all have a lot of fun and I look forward to any thoughts.

I think my first blog will be about banks, now that the retail sides will be ring fenced.  Once upon a time I was a bank manager, with my very own cupboard, when the idea was to lend money in a way that you could get it back.

Watch this space!

In the meantime please do have a look at my business website