According to the United Nations, digital technologies have advanced more rapidly than any innovation in our history – reaching around 50% of the developing world’s population in only two decades and transforming societies. Revolutionary technology developments have meant that many businesses are now using data and artificial intelligence to keep abreast of changing regulations.
RegTech is the use of information technology to ensure compliance with monitoring and reporting of regulatory requirements. For all the right reasons, RegTech is often associated with financial services compliance (for example AML, antibribery, antifraud or sanctions), but increasingly regulatory technology plays a more significant role in the contingent workforce industry.
David Korthals-Clarke, Head of Compliance at Investigo, discusses how digital technology may help UK businesses and individuals achieve supply chain compliance.
What are the areas that white-collar workforce providers typically need to cover and what are the mechanisms in place to ensure transactions are conducted in a compliant manner? We have seen the value of digital solutions easing the compliance burden of responding to legislation. There is no doubt that stricter enforcement, including naming and shaming the culprits, will trigger an increased demand for compliance products.
General Data Protection Regulation
In the build-up to May 2018, recruitment businesses had to drastically rethink their data protection strategies in preparation for the General Data Protection Regulation (GDPR). Many of us were anxious that 25 May 2018, judgment day, would forever change the world. Agencies hastily started mapping their data (transfers), updating their privacy notices, improving their cybersecurity, conducting Data Protection Impact Assessments, and updating their marketing practices. Technology platforms spotted a gap in the market and promoted their compliance portals on an unprecedented scale. Given the hefty fines at stake - €20 million or 4% of annual global turnover; whichever is the greater - GDPR was the type of legislation not to be sneezed at. GDPR reinforced that not just the regulated sector had to invest in their compliance infrastructure, but almost every organisation was now expected to build and shape their compliance programmes on an ongoing basis to meet the demands of a modern, data-driven world.
Key Information Documents
In 2020, the obligation to supply Key Information Documents to candidates was introduced. By virtue of the new clause 13A of the Conduct of Employment Agencies and Employment Business Regulations 2003 (the Conduct Regulations), recruitment businesses needed to be clearer on how a candidate’s take home pay is determined and the conditions that apply regarding the relevant assignment. Many umbrella companies and technology providers made it possible for recruitment companies to complete online forms. A clear breakdown of the relevant deductions, often web-based, is then supplied to the candidate in a clear format.
IR35 and pseudo self-employment
Insurers really smelled an opportunity in the run up to the changes in the off-payroll legislation, also known as IR35. IR35 has been with us for more than twenty years and although the name has not aged since the Inland Revenue issued its associated press release back in 1999, the concept has certainly matured.
Artificial Intelligence has proven to be a helpful tool in ensuring compliance. The UK Government has a tool in place called CEST which enables the parties in the chain (the end user, the recruitment business, and the limited company contractor) to complete and authorise a status determination before the start of the assignment. However, the tool has received much criticism which has led to an increase in providers offering insurance backed up technology products to private sector businesses.
The UK is not the only country where digital tax status questionnaires are gaining popularity. Even in Germany we have seen private initiatives that enable recruitment businesses, contractors, and their clients to get clarity upfront on how the assignment needs to be classified and avoid ‘Scheinselbstä ndigkeit’. The Netherlands also has been looking at introducing a web module, but so far this has lacked significant traction.
Back to the UK, the true value of these digital status determination questionnaires has yet to be assessed now the ‘soft landing’ has ended and proper enforcement has been expected, but the great benefit about these tools is that all businesses are encouraged to comply with the spirit of the law.
2022 should be the year for both intermediaries and end-users to audit their IR35 compliance programmes and assess if all the relevant status determinations are still correct and that reasonable care is taken when (re)assessing the original determination.
Right to work
We have been seeing substantial changes in the area of right-to-work checks. In addition to face-to-face checks (also known as ‘manual checks’) and because of the Covid 19 pandemic, the UK Government allowed employers to verify the right to work digitally. The recruitment consultant needs to ask the candidate to hold up the original documents to the camera and check them against the digital copy of the documents. Recruitment consultants need to take a screenshot of the candidate holding their ID and save this on their internal systems.
From 30 September 2022, this step in the process will be expanded. Employers will now have to conduct right-to-work checks through approved identity service providers (IDSPs) who will be using Identity Document Validation Technology (IDVT). At this stage it is unclear how many providers will be accredited, the nature of the SLAs and the costs for checking. Some IDSPs will be providing web-based services whereby other solutions are app-based.
In addition, many checks like visa (if the candidate has a biometric card) and (pre)settled status can already be carried out digitally on the Government’s website by verifying a share code and the date of birth provided by the candidate. 
The process has become multi-layered, and it is key for businesses to bridge the gap between IT and Compliance and find the best solution to carry out ID checks efficiently and file them accordingly.
Umbrella company compliance
The UK umbrella company market has never been closer to becoming regulated. The UK Government issued a consultation on the role umbrella companies play in the UK and how they interact with the tax and employment rights systems. Furthermore, HMRC has issued the supplier due to diligence principles  and it has published a list of named tax avoidance schemes, promoters, enablers, and suppliers . The UK Government has also created free, online tools to persuade businesses and individuals to operate on the right side of the fence. It is interesting to explore a tool that has been designed for contractors to check whether their umbrella company is a tax avoidance scheme in disguise. Furthermore, considering any potential criminal liability under the Criminal Finances Act 2017, recruitment businesses and their end clients are encouraged to create an approved supplier list that undergoes regular screening. It seems that over the next couple of years tailored digital questionnaires will become part of the supplier onboarding process. As I have stated before in my previous blog on The importance of managing a compliant contingent labour force (investigo.co.uk), ‘Know Your Supplier’ may become a popular back-office term in the contingent workforce industry.
The public sector and the regulated industries already instruct recruitment businesses to carry out in-depth background screening on their candidates (including but not limited to criminal, media, and sanctions checks). However, the war in Ukraine has triggered the question as to whether workforce providers should also check if their Russian clients or any of their affiliates appear on any sanction’s lists. Under new sanctions, Russia has also been banned from using British management consulting, accounting and PR services and there have been talks about potentially imposing more restrictions on the service sector. Irrespective of whether an activity falls under the scope of the sanction’s regime, for moral reasons many businesses have decided to cut their ties with Russian-owned businesses. However, as company structures can be incredibly complex, technology is essential to help companies identify the Ultimate Beneficial Owners of the business.
The changing regulatory landscape presents ongoing challenges for recruitment businesses, which keeps the job of people working in recruitment compliance more exciting than ever. Businesses who offer compliance products may consider putting together more comprehensive packages for the UK recruitment sector. And if avoiding fines and reputational damages itself is not the goal, one should bear in mind that a robust compliance programme protects the interests of all the parties in the supply chain. If a company wants to become an attractive M&A target, then it needs to get its house in order. Digitalisation will help us to achieve these goals more efficiently. Tailored compliance software for the recruitment sector will become the norm, slowly but surely.
 This is not an exhaustive summary of the relevant legislation undergoing reform and does not constitute legal advice. It is merely an overview to illustrate how legislation and digitalisation impact the recruitment industry.