Investigate effects on NHS recruiters of national insurance increase, chancellor told

Contractor recruiters on the NHS are struggling to meet the costs of providing trusts and hospitals with the key temporary personnel that they need to provide healthcare.

Broaching the issue to the chancellor Rishi Sunak, ASPCo says his increase of 1.25% points in Employer’s NI is wrongly falling to recruitment firms to fund from the supply chain.

Partly, this is down to NHS England’s and NHS Improvement’s price caps restricting the total amount a trust can pay an agency worker not being adjusted to meet the NI increase.

'Minimal negotiating power'

But in a letter to both Mr Sunak and the health department, ASPCo’s Tania Bowers also says NHS frameworks afford agencies supplying trusts “minimal negotiating power”.

The contrast is the private sector, where it is much more of a commercial negotiation as to who should bear the burden of increased supply costs, argues lawyer Ms Bowers, adding:

“Given the inequality of bargaining power between the contractual parties, this makes the position taken by the frameworks at the very least unfair and arguably an abuse of their dominant position.” 

'Extraordinarily complex'

Compounding the situation for agencies, their status as SMEs restricts them from achieving economies of scale, and the nature of healthcare recruitment only adds to the pressures.

“Compliance and vetting is extraordinarily complex”, the Association of Professional Staffing Companies (APSCo) says.

“[Agencies] must employ disproportionately large compliance support teams to meet onboarding requirements, ensure registrations and training requirements are up-to-date, and manage internal and external audits.”

Bowers further tells Mr Sunak that all these labour costs must be met from the agency’s margin, and are surplus to pre-employment costs like digital right to work checks, and post-employment costs potentially including training, interviews, and appraisals. 

'Reliance on contractors'

The increase in NI costs will not have helped recruitment efforts in an industry where it is already common for very high day rates to be demanded for critical services, according to chartered accountant Helen Christopher.

Chief operating officer at Orange Genie, Ms Christopher says her firm recently worked with a couple of large organisations which supply locum doctors and staff the NHS’s 111 service.

“During our work with them to support their IR35 assessment processes, it has become apparent that they have a huge issue in trying to attract and retain the right level of staff hence their reliance on contractors and temporary workers,” she said.

'Umbrella agency workers very hard-hit'

Another contractor taxation expert Carolyn Walsh says that partly thanks to the cap, the NHS has reduced its reliance on temporary staff.

“But usage [of contractors for NHS projects] is still prevalent,” Ms Walsh, boss at CWC Solutions said last night.

“For umbrella company workers who use agencies in particular, the NI increase has meant an upward adjustment in the difference between the umbrella rate and the worker’s pay rate which coupled with the rise in employee NI and freeze on the personal allowance for tax, plus inflation of 9%, leaves these workers being very hard hit.”

'Minimal difference to limited company contractors'

The other category of NHS agency worker who operates neither as an agency employee nor as an umbrella employee are limited company contractors.

And a limited company accountancy advisory Integro Accounting, calculates that such workers are doing comparatively well.  

Integro managing director Christian Hickmott said: “The chancellor’s April increases in NI are not so much of a concern for those working through their own PSC, as many of those take salaries just below or just above the pertinent NI thresholds which his increases affect.

“So minimal difference to the bottom line for most PSCs. The dividend tax hike is likely to be impacting them more.

“That said, those impacted by the 1.25% dividend increase since April 2022 are working on an outside IR35 basis and, in so doing, are relatively content versus the last couple of years of HMRC’s foreboding communications to the NHS.”

'Reality is far more acute'

But at APSCo, Ms Bowers says she actually wants government attention and scrutiny, because what’s happened has gone beyond the association’s worst fears.

Reflecting on her letter to the chancellor, she said: “The combination of rising inflationary pressures and increasing wages and skills shortages has led to employers facing rapidly rising costs in salaries and benefits for their permanent hires and temporary workforce.

“We felt that an increase in employer costs would exacerbate this situation. The reality four months later is in fact more acute, given the cost-of-living crisis and the long-term impacts of the Ukraine war.”

The association added that amid its health sector members now confessing they are struggling to meet the costs of supply, in light of the April NI increase, the government should “investigate, -- both the issue of increased employer costs of supply, and agencies’ treatment under NHS frameworks including the Crown Commercial Service’s Workforce Alliance.