Supply Chain

The past ten years have seen the rise of single point supply chains which has seen recruitment pushed down the line to the detriment of both the recruitment process and the profitability of the agencies supplying staff. While the end user no doubt enjoys cost savings, the biggest benefit is the complete abdication of responsibility for the payment of wages to those staff in the event something goes wrong. The consequences of this are so serious there needs to be legislation to change it.


Procurement specialists and the RPO/Neutral vendor type companies would doubtless say that recruitment agency supply was to haphazard and expensive and together they have brought order to the chaos.


Many agencies have become little more than order takers and are working on sub 10% margins. The debate on the right and wrongs of all this from a quality of service viewpoint, will no doubt, run and run.


There is though, a much bigger concern and that is one of the disproportionate exposure suppliers in these chains are expected to bear.  What happens when the RPO/Neutral vendor goes bust? Rumours abound about the creditworthiness of one of the ‘household name’ neutral vendors. An examination of the accounts of some others raises many concerns. The risk to recruitment companies is magnified by the concentration that results from replacing a diversity of customers often with very good credit ratings with a few RPO/Neutral vendors with much poorer ones.


The consequence of a bankruptcy would be this.... The end user would wash their hands of all liability and responsibility. The current management of the RPO/Neutral vendor and their ‘professional’ advisors would deliberately mislead everyone until it was too late to do anything. The PAYE temps would loose a little bit of money. The limited company temps might loose a bit more. They may or may not loose their jobs entirely.


The tax man would take a big hit. However the real victims would be the recruitment agencies who found, introduced and pay-rolled the temps. Even though in many cases the recruitment agencies relationship is with the end user client and they have just been ‘routed’ via an RPO/Neutral vendor.  Even though they found and paid the staff and even though they accepted low margins and extended payment terms, those recruitment agencies would not have any hope of getting re-imbursed for the wages they had already paid or that they owed to HMRC as a consequence of doing so.


If the whole affair is managed as a ‘pre-pack administration’ the banks administrators and new owners would have ensured their fees and disembursements matched any available sums there were. This would have been done well in advance.


RPO/Neutral vendors make a lot of money and on the face of it don’t look like candidates for bankruptcy. However, they work on tiny margins, and are now under pressure to end the ‘pay when paid’ terms they enforced at the outset. Moreover, some at least, cannot resist the cash mountain they preside over and have engaged in dubious purchases of apparently worthless subsidiaries for large sums of money, allowing the transfer of cash out of the business to the owner’s individual pockets.  


The success of this single point supplier model using RPO/Neutral vendors is entirely cost driven with no concern for quality. The risk, as already pointed out, lies wholly with the suppliers. However, if you discount for a moment the RPO/Neutral vendors and their owners (who may or may not benefit from a bankruptcy depending on their sense/honesty) the real benefit lies with the end user.


Such is the cost saving of this kind of supply chain management to the end user, they are easily able to pay an RPO/Neutral vendor a small percentage of their total temp wages bill as in that cost, lies the whole extent of their risk. They need not be concerned with employment law or the re-imbursement of the wages paid for work done in their service. They will also be treated with kid gloves by the banks and administrators, as their ongoing custom will be the end that justifies all the means.


An end user in these circumstances will almost certainly be aware of the plan long before the supply chain is and may well be instrumental in sourcing and appointing a replacement RPO/Neutral vendor.


Thus it is the end user who should ultimately pay the cost. Under current legislation this simply does not happen. This is despite the likelihood that the end user is a much larger enterprise than the supply chain members that sat under its former RPO/Neutral vendor.


There is a gaping disparity in this area between liability for wages and basic employment rights and liability for damage or injury.  It is inconceivable that a de facto employer could avoid vicarious labiality for the actions of temporary workers in its employment simply by virtue of the workers engagement via an agency that routed via a RPO/Neutral vendor.   The same standard of care needs to apply to the supply of workers. 

The government have shown themselves to be quite ready to make fundamental changes to employment, tax and company law as regards the tax obligations of temporary staff themselves. It is therefore essential that a future government passes laws that make end users of labour responsible for the payment of wages and taxes of people who are (but for the way the end user arranges it) employees of their business. This should extend to those organisations that have paid wages and taken on PAYE liability in good faith to workers in the de facto employment of an end user.


This would re- address the imbalance between suppliers and end users and send out a clear message that corporate failure should not be seen as an opportunity by those sitting at the top of supply chains to enrich themselves.