Staff Engagement Through Intermediary Companies - Essay Example

Introduction This paper provides an insight into one of the most important issues in the UK employment sector these days. The issue concerns the rising tendency on the part of employers to engage staff workers through the intermediary companies. These companies are indulged in arranging staff on a temporary basis for the employers. There happen to be abounding factors encouraging both the employers and employees to choose intermediary companies against the employment on a permanent basis. The paper also evaluates the UK tax system and the accompanying tax benefits that contribute to the prevalence of staffing activities via the intermediary companies. On the contrary, hiring employees on the permanent basis can procure long-term benefits for the employer. Thus starting with the measurement of tax benefits for employers favouring the temporary staffing, the paper moves on to the evaluation of long-term benefits the employer could attain by engaging employees on the permanent basis. Staff Engagement Through Intermediary Companies In The Context of UK Tax System During the recent years, there has been a massive uplift in the staffing activities of intermediary companies in the United Kingdom. There are abundant factors that contribute to the uplift in the trend on the part of both the employers and employees. Employees are of the view that self-employment on the temporary basis pays more than the permanent employment as there happens to be several opportunities for them to enter job markets. They often associate it with the flexibility of working conditions and requirements. There are also some skilled persons whose skills are highly demanded by the employers and in order to make the most of their skills, they prefer to work on contractual basis rather than working and clinging permanently to the same company. On the part of employer, however, there appear to be several other factors that encourage them to go for intermediary companies in the pursuit of temporary workers. These factors are said to be those benefits to the employers that are associated with the temporary hiring of the working staff through the intermediary companies. Employers are mostly looking for the opportunities to fend off the responsibilities and legal obligations of hiring the permanent employees that is significantly available in the temporary staffing. It not only saves the employers from the legal responsibilities but also to the great extent facilitates in the employers' intention to evade taxes that are otherwise payable on the permanent hiring of employees. The investigation by the UK treasury confirms that there has been an increasing tendency on the part of employers and corporations to evade taxes by way of staffing through intermediary companies. The current UK taxation system allows certain exemptions on the taxes to be paid in the case of temporary employment by the employer, which consequently encourages the employers to use this strategy to avoid their tax liabilities. UK law clearly defines and differentiates the meaning of employees and temporary workers so as to explicate the tax liabilities as well as exemptions and also to avoid any exploitation of these terms by any of the parties. However, it fails to recognise the probable exploitations of loopholes in tax laws concerning the temporary employment on the part of the employers. Therefore, the present UK tax system in the form of tax credits or tax exemption allowed in the case of temporary employment encourages to a great extent the exploitation of laws for the purpose of tax evasion on the part of employees. Although staff engagement only via the intermediary companies and not through permanent employees does not in the direct sense implies the employer's intention of tax evasion, but the increasing trend as evident in UK and also the decreasing tax payments due to the provision of temporary workers by the intermediary companies indicate the fact that there exist some significant loopholes in the tax system that aggravate the current situation. In this way, through temporary staff engagement, the employers contact the intermediary companies to procure the desired number of workers and there remains to be no legal obligations on the employer after the job gets done and the maturity of contract. Thus, they not only gain by evading taxes but also through the timely use of labour without incurring any legal liability. Permanent Employee Engagement And Achievement of Long-Term Business Goals The employer tendency of going to the intermediary companies for the procurement of temporary workforce can be mitigated by the fact that the engagement of permanent employees is more beneficial for the companies in reaching its long-term business goals and objectives. As a matter of fact, employers can save their money and resources by staffing workers on contractual basis rather than offering permanent employment, but consequently will fail to attain the attain the most important business goals of stability and survival with profitability. Employees are the integral part of an organisation. These people can even lift the organisation to the highest level of profitability or on the contrary lead it to the devastating position. If a company goes for the option of offering temporary employment through the intermediary companies, less are the chances that those 'temporary' workers would put their heart and soul into the success of the organisation. The reason behind this fact is the lack of motivation i.e., the people who cannot associate their future with that of the company's cannot be conceived to be interested in the company's well-being and prosperity. This suggests that the company or the employer can also make its way to the organisational success through the permanent hiring of the employees. This will happen if the company while complying with the ITEPA 2003 to enhance their motivation through the employee participation schemes such as the employee share ownership scheme. Role of Employee Share Schemes For The Achievement of Organisational Goals Utilisation of share schemes such as SAYE (Save As You Earn) and Company Share Option Plan (CSOP) can lead to a great enhancement in the employee motivation level, which significantly drives the accomplishment of organisation goals concerning the long-term cost minimisation and the availability of a stable workforce. Conyon and Freeman (2001) after surveying several UK companies listed on the Stock Exchange suggest that the companies utilising the employee share schemes performed better in terms of profitability than the companies not having introduced these schemes among the employees. The HMRC rules and regulations provide corporation tax exemption for the companies introducing such schemes among the employees on the costs concerning the assembling of the plan and also relating to the provision of shares. According to the UK laws, the company can utilise the share scheme through any of the two methods. One is to offer a certain number of shares to the employees as a part of their salary and the other is to let the employees have the option to buy the company's shares. Bradley and Nejad (1989) say that the provision of shareholding position to the employees can have a direct influence on the employee's performance. The shareholding position gives a feeling of ownership to the company (Pendleton, 2001). Long-Term Cost Minimisation Hiring permanent employees and utilising the ITEPA 2003 laws concerning the share schemes helps a company to reach its goal of long-term cost minimisation. Minimisation of costs happens to be the most important issue an employer has to confront with in the present era. The companies utilising the workers on contractual basis have to face periodical giant costs on recruitment and training of the temporary staff including the payment to intermediaries every time they are hired. Although, a company also needs to spend money on recruitment, training and development of permanent employees, but it can serve to be a one-time expense for a company minimising its long-term costs by way of retaining the employees. Employees can be retained if they rewarded constantly for their efforts and this can be done by means of share schemes. Wilson and Peel (1990) propounds that share schemes have an immense impact on minimising labour turnover. Kessler and Purcell (1992) comment that if the company manages to reduce its employee turnover rate, it can be really helpful in minimising training costs. When the employees find themselves a part of the company's ownership, they will put their all their efforts in the company's performance. However, contrary to this view, employee participation in the ownership may have negative impact on the employees' performance in the case when the share prices go down due to any reason that can result in high employee turnovers and work stress. Ensuring A Stable And Knowledgeable Workforce Companies can ensure a stable availability of trained and skilled workforce by hiring permanent employees. On the contrary, the companies engaging staff through the intermediaries fear the unavailability of required personnel for particular positions. Because certain skills are highly in demand by several companies, it is very likely that the company may not acquire the right kind of people every time it needs. If a company hires its employees on a permanent basis and becomes able to retain it with the help of rewards such as share schemes, it serves to be an assuring factor that the company can utilise these people towards a stable and continuous achievement of the organisational success. However, Hyman (2000) enounces that sometimes a company can only elevate the level of employee performance through share schemes, only when it can provide a substantial number of shares to the employees. It is not always possible for every company to distribute a good number of shares among its employees, as it can weaken the company's equity and also the management concern for decision-making can be exploited. Conclusion The above discussion suggests that there does exist some loopholes in the UK tax system in the form of exemptions allowed to the employers in case of engaging temporary staff for the jobs and there also exist evidence that the companies are found to be exploiting the tax exemptions on temporary workers for the purpose of evading taxes. On the other hand, such activities might allow the companies to save money in the short-run, but it will eventually lose in the long-run when it comes to the question of increasing staff engagement long-term costs and the availability of stable workforce whenever the organisation needs it. This calls for an effort by the company to first of all employ permanent workforce and then retaining them with the help of rewards through careful use of ITEPA 2003 laws. References Bradley, K. and Nejad, A. (1989)," Managing Owners: The National Freight Company Buy-out in Perspective", Cambridge: Cambridge University Press Pendleton, A. (2001) Employee Ownership, Participation and Governance. London: Routledge Wilson, N. and Peel, M. (1990), "The Impact Of Profit-Sharing, Worker Participation, And Share Ownership On Absenteeism And Quits: Some UK Evidence", in G. Jenkins and M. Poole (ed.) New Forms of Ownership, London: Routledge Kessler, I. and Purcell, J. (1992), "Performance-Related Pay: Objectives And Application", Human Resource Management Journal, Vol. 2, No. 3, pp.16-33 Hyman, R. (2000), "Editorial", European Journal of Industrial Relations, Vol. 6, No. 1, pp. 5-7 Conyon MJ and Freeman RB (2001), "Shared Modes of Compensation and Firm Performance: UK Evidence", Mimeo Read More