The introduction of the agency legislation back in 2014 handed recruitment businesses the responsibility of determining a workers’ employment status using a Supervision, Direction and Control (SDC) questionnaire.
It’s important that all recruitment business engaging both self-employed and employed workers are aware of SDC legislation and understand how to demonstrate full compliance.
Agency legislation
SDC is used to determine the employment status of a worker and was formed in a collection of legislation that is colloquially 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).
SDC best practice
Should you choose to produce SDC questionnaires in-house, there are a number of factors you should consider in order to demonstrate full compliance:
SDC process – You must have an up-to-date and compliant SDC process in place which ensures that an SDC questionnaire is completed for each and every assignment a contractor undertakes.
People – You must assign qualified in-house individuals to complete SDC questionnaires, compliance, work finding agreements and onboarding checks before workers go on site. These individuals must be trained in how to deliver the SDC questionnaire; ensuring that contractors aren’t provided with any answers or indication of choices that may influence the outcome of the questionnaire.
Contracts - Along with utilising an SDC questionnaire to look at the working conditions of an assignment; it is crucial to also scrutinise contractual terms to ensure there are no ‘rights of’ that may contradict the definition of self-employment. Looking out for phrases such as ‘X is under no obligation to do Y’ or anything that refers to ‘reporting to’ or ‘being supervised by’ any other person or business is a great place to start.
For further comfort on the contracts you distribute, it’s important to seek specialist advice.
Tax and employment specialists – A great way to ensure your SDC process remains robust is to regularly engage with tax and employment specialists to independently assess your SDC and onboarding process. They can give a specialist’s opinion on the strength of your SDC questions, TOB’s and contracts of engagement.
With tax and employment law legislation constantly evolving, you must ensure that you continually monitor and update your SDC procedures in line with legislation changes and guidance updates released by HMRC.
Job adverts – It’s important that job advertise are transparent and clearly show the type of contract and engagement that are dependent on SDC results.
By doing so, a contractor is able to establish the type of documentation and payment available for a specific role.
SDC storage – You may find that in the future, a certain circumstance may require you to show evidence of an SDC questionnaire result against a specific assignment. It is therefore essential that these details are stored securely should you ever need to access or review the document.
Consequences of poor SDC practice
Should your business 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.
Bar2 SDC process
From our experience, SDC categorisation can be a little confusing. With legislation surrounding SDC constantly evolving, we understand that the administrative complexities of operating within the labour supply chain is getting evermore challenging.
We’ve created a simple and quick SDC questionnaire for your workers that allows us to confidently select the suitable contract for their assignment and maintain the highest level of compliance.
To find out more about our services and how we can support you in demonstrating full supply chain due diligence, head over to our client page below: