24 June 2016

Is charging temps/contractors a 'payroll admin fee' a new low for our industry?

I seem to be very late to the story on this one.

Early last year, people2people Shared Services Manager, Lisa Johnson had this issue raised with her in the comments section of her people2people blog Is your recruiter ripping you off? and subsequently Lisa wrote a follow up blog later in the year Who Wins When a Recruitment Agency Charges Temps an Admin Fee? specifically about the apparent trend of agencies charging candidates a form of ‘Payroll Administration fee'.

In the example that Lisa writes about, she quotes a figure of 2.5% of gross pay being deducted from the candidate. This is quite appalling when you do the maths.

Let's say the temp or contractor is earning $40 per hour, gross pay. A 40 hour week would aggregate the employee's pay to $1600 per week. Under the current financial year tax rates a tax deduction of $393 is made (assuming the tax-free threshold is claimed). The agency employee, being charged a 2.5% ‘Payroll Admin' fee, is then hit with a $40 deduction from their after-tax pay, an actual cost to the employee of 3.3% of their weekly after-tax income.  This $40 may be claimable as a deduction in their actual annual tax-return, but that's not relevant to the core of this issue.

It would seem from one of the commenters in Lisa's blog, who followed the issue up with the Fair Work Commission, was advised that as long as the ‘Payroll Administration fee' deduction does not reduce the employee's wage below the award minimum for that work, then there is no law being broken.

I don't care that no law is being broken - this deduction is an underhand  charge that is in no way justified and greatly damages the goodwill and reputation of the recruitment industry in general.

In my view, supporting the position that Lisa articulated in her blog, is that this levy on temporary employees and contractors is a coward's way of recouping costs that are actually charged to the client as part of the hourly or daily rate attached to the agency's employee or contractor. As Lisa so rightly puts it: ‘The agency has double dipped'.

This is an insidious tactic of winning work through low or uncommercial margins and then attempting to make this ‘lost' margin back through the hip pockets of candidates.

I, for one, want this practise stopped - immediately.

I will contact the recruitment agencies undertaking this practise to request an explanation for the circumstances in which this levy is imposed and the reasons for doing so.

Please help me in this campaign by providing your comments, here on this blog, the name of any recruitment agency imposing any sort of payroll admin fee on their workers. You can post your comments anonymously if you prefer. Alternatively you can email me directly at ross@rossclennett.com.

Thanks in advance for your help.

Related blogs

Most recent blogs


11 comments:

  1. Lisa Johnson24/6/16 4:16 PM

    Ross, I am absolutely thrilled you have written about this issue as it really flummoxed me when I had candidates tell me they were getting charged this fee! I hope with your reach and influence that these agencies will rethink this practice.

    Thank you for the shout out too - I really appreciate it :)

    ReplyDelete
    Replies
    1. Thanks for the inspiration, Lisa. I hope I can provide some answers for recruiters concerned about this new practise.

      Delete
  2. Darren Taylor24/6/16 5:23 PM

    Hi Ross, I replied to Lisa's post last year and I also think it is unethical, although I am not surprised. Many of the larger IT agencies on the larger PSA panels use this tactic to increase margins and sell it is a payroll processing fee for PAYG contractors - the margins on some of these large accounts can be as low as 4% and I know their team leaders and managers encourage team members to get PAYG contractors on board and to discourage the use of payroll companies so they can increase margins. I will send you a private email with the name of at least one who I know for a fact uses these tactics.

    ReplyDelete
    Replies
    1. Thanks Darren. From emails received to date about this issue it does seem to be led by the large IT contracting agencies.

      Delete
  3. Rebecca Bolton, Precruitment Cairns24/6/16 5:57 PM

    Hi Ross, Great article. It is behaviour such at this which severely tarnishes the great reputations and professional approach of the majority within our industry. It is this behaviour which provides ammunition for politicians to come up with schemes such as licencing which is currently being reviewed by the QLD Government (I refer to the recent Parliamentary inquiry which myself and other RCSA members appeared at) and yesterday's announcement by Labor Shadow Minister Brendan O'Connor.

    ReplyDelete
    Replies
    1. I agree, Rebecca. These imposts on workers do not help our case with any Labor Government. It just further strengthens the case of those who criticise our industry as not supporting a fair labour market.

      Delete
  4. Phil Isard24/6/16 7:10 PM

    When I think of these commercial behaviors it's disturbing. Yes, our industry can be very competitive, and innovation for reducing cost or increasing margin I'm all for, though it's through innovation that adds value through the supply chain, not through old sales tactics of "give it to them on the front end, only to get it back on the back end." One of our values is Integrity, which we see as "Our actions today decide if we are in business tomorrow." Hopefully candidates will vote with their feet, find better representation, and these operators fall on their sword.

    ReplyDelete
    Replies
    1. Thanks, Phil and I agree that our best hope is candidates voting with their feet on this issue.

      Delete
  5. I have heard that Charterhouse is doing this. It is grossly unfair - and targets the least able to pay it. No better than a pay-day lender in my book. Charterhouse - the cash converters of the recruitment industry!

    ReplyDelete
    Replies
    1. Thanks, I will contact Charterhouse and see if they are undertaking this practise.

      Delete
  6. Scott Small29/6/16 11:50 AM

    Hi Ross,

    Great to see you taking on this issue via a blame and shame approach. It is a blight on our industry and does call it into disrepute. No wonder the Labor party is trying to get mileage out of us….

    Personally I only heard about the practice myself in the last six months or so. I’m quite confused as to when a number of the instances I’m now aware of seem to have occurred will full disclosure of price reporting including pay details. Namely Government contracts.

    From my knowledge it seems to be around the IT players. Candidates on bigger salaries and often contractors. Small amount of 3% or so to “administer the contract” is taken out after the fact as a “deduction”. I think this is also how they are dodging the reporting issue.

    If I find any specific companies I will let you know. I heard about it initially through a new contract implementation with Sydney Trains when we were grilled over the issue. I had to get them to explain to me what they were referring to as I was dumbfounded to say the least.

    Keep the fight up for integrity in business Ross and enjoy your weekend.

    ReplyDelete