Governments around the world have been throwing money at economies to mitigate the worst social and economic effects of the Covid-19 crisis. When the world regains its footing and is able to get back to business, there will be a bill to pay for this.
Borrowing seems unlikely to be the complete answer, and while many governments will avoid raising taxes across the board, tax receipts are likely to be part of the answer. How will this affect the staffing industry?
Ownership restructuring. Many privately owned companies will likely restructure as owners pass shares in their business beyond the reach of the wealth taxes many are calling for. This may involve second-generation family members getting more involved in businesses. Some owners may just decide to sell up, and we may even see wider employee ownership within some companies.
Business model shifts. We expect increased tax and social security payments due from higher-paid contingent workers, which may drive more workers toward operating on an independent contractor basis.
As a result, we can expect many countries to re-examine the tax and social security benefits of operating on an independent contractor basis. It seems likely that governments will drive compliance in this area along the lines of the UK IR35, by making end users liable for supply chain tax avoidance, forcing them to be super-cautious in what they allow “down below.”
This may in turn push more contingent workers into employed models, with PEO and similar models eventually being the winners.
However, the growing acceptance of remote working might lead to increasingly “genuine” self-employment and independent contractor models — if “supervision” is a key test of whether someone is self-employed and they work from home and technology allows people to be measured more and more based on their output, who is supervising them and is supervision needed? And what if they are working in an offshore location?
Re-training “scrap-heaped” workers. Government concerns about the young generation of workless school-leavers and graduates may lead to tax breaks and grants for the provision of training. Many countries are looking at this, and many staffing companies and related consultancies will drive the push for re-skilling the workforce.
MSP/VMS usage. In order to keep costs under control, expect to see more and more spend going through MSPs and VMSs as well as the increased use of online platforms and technology to keep margins low.
No doubt, managed service programs will look to drive profitability by investing in technologies, or merging with technology companies, which allow processes to be automated.
Compliance and consolidation. There have been allegations in the UK about staffing suppliers to major fashion chains like Boohoo operating through the lockdown with minimal respect for social distancing and hygiene requirements, leading to high infection rates in cities like Leicester. There have been similar media exposés relating to industries like meat processing with similar local lockdowns near plants in Wales and Germany. In the UK, these exposés have also uncovered breaches of minimum pay legislation, with allegations that the authorities have turned a blind eye to those breaches to keep employment levels high.
This apparent link between labour law breaches and high Covid-19 infection rates may very well lead to much greater enforcement of labour laws and health and safety laws in labour supply chains, including chains where contingent workers are used. Further, we may see major commercial brands become liable for wrongdoing within their supply chains. This has been discussed by successive leaders of the Labour Market Enforcement Authority in the UK and we expect the EU to introduce laws requiring companies in all EU member states to carry out due diligence on their supply chains.
This will likely make it harder for smaller staffing companies and outsourcing companies to convince major corporates that they are safe to do business with, and we expect a gradual consolidation of the supply chain and greater market share for larger suppliers. And how will all this affect use of offshore suppliers who by definition are relatively harder to carry out due diligence on? It may very well fuel a reaction in many countries against globalisation, leading to opportunities for local suppliers of contingent workers and workforce solutions. Alternatively, we may see greater usage of automation in the longer run.
