A year in review: Impact of COVID on UK recruitment industry
December 23, 2020
Outsourced Accounting and Finance Services
COVID-19 has had a huge impact on the UK recruitment industry and how staffing agencies operate. Aside from facing a hiring freeze at the height of the pandemic, all agencies have had to change the way they operate as part of their road to recovery.
From remote working to fluctuations in hiring trends, the changes in the recruitment market have affected almost every aspect of recruitment businesses, including the back office.
In most instances, agencies have experienced a significant drop in vacancies and revenue. In other circumstances, agencies have been overwhelmed by the high demand for staff such as in the healthcare, FMCG and logistics industries.
So how have these changes affected the back office side to recruitment? And how have agencies adapted their processes to the ‘new normal’?
Key points
- Back office problems presented by COVID-19: staff shortages, cash flow, high volume demands and government funding
- New solutions for recruitment companies: outsourcing tasks, digitisation, increased use of AI
- Upcoming recruitment challenges in 2021: IR35, Brexit, end of Job Retention Scheme
How COVID has challenged UK recruitment companies
1. Staff shortages
Due to the regulations surrounding isolation, recruitment companies have experienced staff shortages in cases where employees need to self-isolate or they fall sick. This has been particularly problematic for smaller recruitment companies whose back office team is often reliant on a select few members of staff. This has disrupted the back office processes that help recruitment companies run smoothly such as paying employees, sending invoices and financial reporting.
2. Unexpected high volume demands
Whilst this might not sound like much of a problem, not all companies were equipped to deal with demands for high-volume hiring. This has been further complicated for companies who are simultaneously experiencing staff shortages.
3. Cash flow issues
Supplying high volumes of staff means supplying high volumes of payments. Unfortunately, since these spikes in hiring requirements were unprecedented, many recruitment companies didn’t have the time to plan and budget for such a financial outlay. This has meant that companies have had to look for alternative solutions such as the use of emergency loans like the CBILS and CLBILS.
In addition to this, most recruitment companies experienced a drop in revenue throughout the pandemic. As a result, they’ve struggled to operate using their costly pre-existing processes (such as the cost of taking an employee off furlough to run the payroll) and have had to look for more affordable alternatives.
4. Applying for government support schemes under pressure
Of course, agencies were glad to receive financial support from the government in the form of furlough payments and business grants. However, sometimes just gathering the necessary paperwork for the application can be a heavy admin task in itself. The process of applying for this support has added pressure, required extra expertise, and often called for additional support.
In a time where everybody has been feeling the stress of the pandemic, it’s been vital that recruitment agencies maintain a high level of service so as not to add to everybody’s stress levels. Companies are also operating in a time where clients are more valuable than ever and therefore delivering a first-class service has never been more important.
Ways recruitment companies have adapted their back office processes
1. Outsourcing support
Recruitment agencies across the UK have begun outsourcing various parts of their accounting process in order to compensate for any backlogs of work and as a more affordable alternative to taking an employee off furlough. Where some smaller businesses may have been missing the infrastructure to respond to the demands of the COVID market, outsourced accounting services have been able to quickly facilitate requirements through their expertise.
Financial processes that recruitment companies can outsource
- Payroll
- Invoicing
- Bookkeeping
- Credit control
- Financial reporting
- Intermediaries reporting
- RTI submission
- Pensions management
2. Digitising processes
The pandemic has also encouraged recruitment companies to digitise their processes. The transition to remote working has meant that businesses are less able to depend on paper copies of documentation. Although this is a positive change for staffing agencies, the transition to digital is also a heavy admin task and can be quite an operation!
3. Using Artificial Intelligence for data analytics
The use of data analytics was set to rise in 2020 but the pandemic has accelerated this trend. During this time, companies need to be extra stringent with their budgets and have a closer understanding of the overall mechanics of their business. CEOs want to be able to spot trends, inconsistencies, problems and find ways of being more efficient quicker than ever.
As a result, recruitment companies have increased their use of AI to gain better insights at a quicker pace, resulting in better business performance.
What challenges await the recruitment industry in 2021?
1. Changes to IR35 legislation
Amidst all the chaos, the recruitment industry was anticipating the changes to IR35 legislation to take place in April 2020.
Thankfully, the government decided to postpone these changes until 2021. This has given recruitment companies an extra year to build the necessary infrastructure to prepare for the changes.
How will IR35 affect recruitment companies?
- Better communication will be needed between recruitment companies and their clients
- Recruitment agencies must implement an IR35 determination process
- Agencies may incur additional costs for any software or staff needed for the determination process
- Agencies are at risk of being held responsible for non-compliance
- Agencies may have new obligations to withhold PAYE/NIC income taxes
2. New Brexit legislation
Employment law in the UK is due to change from 1st January 2021. This has added extra strain onto recruitment companies to ensure that their processes are compliant with the new legislation. Because of Brexit, recruitment companies will have more responsibility to check employee worker status.
3. The end of the Job Retention Scheme
With the Job Retention Scheme set to end in March 2021, it remains to be seen how businesses will respond to this change. This ambiguity highlights the importance of data analytics for businesses to ensure they’re managing budgets and revenue as efficiently as possible.
Conclusion
Although the pandemic has brought its challenges, there have undoubtedly been some positive changes that have followed. Businesses have learnt to become more adaptable and how to use outsourced solutions. They’ve also been forced to streamline and digitise their processes.
Although vacancies in the UK have been increasing since the height of the pandemic, more challenges lie ahead such as Brexit, IR35 and the end of the Job Retention Scheme.
2021 will bring new responsibilities and it’s the agencies that have learnt how to utilise different resources (such as outsourcing companies, AI and digitisation) that will stand a better chance of surviving this period.
IMS Decimal are specialists in providing Outsourced Accounting and Financial services for recruitment companies in the UK. To learn more, you can contact us here.
Read next: Tony Bolger shares his viewpoints on the IR35 changes
Subscribe to our updates to receive the latest accountancy insights.
