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The introduction of the agency legislation back in 2014 handed recruitment agencies the responsibility of determining a workers’ employment status using a Supervision, Direction and Control (SDC) questionnaire.

As a recruitment business engaging both self-employed and employed workers, it’s crucial that you’re aware of SDC legislation and understand how to demonstrate full compliance.

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Agency legislation

SDC is used to determine the employment status of a worker and was formed in a collection of legislation that is referred to as ‘agency legislation’.

The agency legislation was updated in 2014 following the consultation of the Onshore Intermediaries legislation and was introduced to prevent recruitment agencies from supplying sole traders whose employment status reflected employment, rather than self-employment. The Onshore Intermediaries legislation requires agencies and employment intermediaries to report to HMRC any workers not operating under Pay As You Earn, on a quarterly basis (Contractor Calculator).

As part of the legislation, agencies are responsible for determining an individual’s employment status. An SDC questionnaire focuses on ‘how’ the work is carried out by a worker and governs whether a worker is subject to (or to a right of) SDC or not. Should a worker be subject to SDC, then they must be placed on the payroll and are deemed as ‘employed’.

As a reminder, GOV.UK provides the following guidance on SDC:

Supervision refers to someone “overseeing another person who is carrying out the work to ensure that they are doing it and that the work is being done correctly”. For supervision to apply, a worker could be seeking advice or assistance from someone else to develop their skills and knowledge.

Similarly, direction refers to someone forcing “a worker to do their work in a certain way by providing them with instructions, guidance, or advice as to how the work must be done”.This could often involve someone co-ordinating how the work is done.

Finally, control is seen as someone “dictating the work that an individual carries out and how they go about completing it”. When an individual is self-employed, there should be an absence of control over how, what, when and where their work is performed (aside from site safety restrictions and project logistics).

It is important to note that a contractor doesn’t need to be subject to ALL three of the above to be considered ‘under SDC’. For example, a contractor may not be directed or controlled, but if they are supervised, or if there is the right of supervision, then SDC applies (Contractor Calculator).

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Consequences of poor SDC compliance

The correct determination of employment status under SDC legislation has significant implications for tax and National Insurance contributions. Should your business misclassify a worker or fail to demonstrate full SDC compliance, you could be liable to pay any unpaid tax and national insurance contributions, in addition to any further fines or penalties issued directly by HMRC.

In July 2022, Healthcare recruitment agency, K5K, were hit with a £260,000 tax bill, after they facilitated false self-employment amongst their workers. To find out all the details on the K5K tax case and how this impacts you as a recruitment business, click here.

We handle all aspects of your compliance

We’ve designed a simple and quick SDC questionnaire for your workers that allows us to select the suitable contract for their assignment and maintain the highest level of compliance.

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