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Too much tax: How the public sector developed a skills shortage

Too much tax: How the public sector developed a skills shortage

Our public sector has a huge problem on its hands. Just last week, official health service figures taken from the end of June 2018 revealed that the NHS’s staffing and financial problems are the worst they’ve ever been, with 107,743 unfilled posts (an increase of 9,268 from three months earlier) throughout the UK.

While these figures are at their most shocking, this skills shortage isn’t a problem unique to the healthcare sector – it’s a problem impacting the public sector across the board.

The public sector has always struggled to stay competitive with the private sector, but last year’s divisive change to the IR35 tax legislation has added greatly to this problem.

Employers are now liable, but at what cost?

Paying taxes might not be most people’s idea of a good time, but since the HMRC updated its tax legislation for all off-payroll employees in April, 2017, IR35 has become a particularly dirty word in public sector circles.

Designed to combat tax avoidance, the revamped IR35 essentially switched the responsibility of tax payments from the employee to the employer. This means public authorities that offer temporary jobs to people who work through their own intermediary are now liable to deduct tax and NICs from all their off-payroll employees.

While these new changes have a number of pros and cons, government departments and companies owned or controlled by the public sector, schools and universities, local authorities and the National Health Service (NHS), are struggling to fill contract roles.

The public sector is losing its charm.

To meet these new obligations, many contract workers in the public sector are being taxed in line with permanent colleagues making it a considerably less desirable career path for contract workers.

As a result, a significant number of contractors have chosen to move over to the private sector – particularly interim workers and daily contractors (and particularly workers from IT and finance functions). The only alternative for organisations is to pay contract workers more, or to increase their number of fixed-term, permanent staff.

This means many organisations are facing greater difficulty recruiting new talent, and are having to pay more for it, but before the legislative change pay rates were on par with the private sector.

According to a recent study, 32% of public sector bodies said that it was now more difficult to fill contract vacancies, and 24% said that since the reforms were introduced, they have found it harder to recruit off-payroll contractors with the right skills or experience. The study also found 33% of public sector bodies said that contractors were less willing to carry out work for them since the reforms were introduced.

Poor performance comes at a greater cost.

At a time where organisations in the public sector are under increased pressure to keep costs down, especially with Brexit only just around the corner, these circumstances are less than ideal.

To stay afloat during this tricky period, it’s vital that organisations in the public sector are now more selective than ever when it comes to taking on board new talent – poorly-chosen and ill-suited employees will only increase costs, even if they only come in a contractual basis.

Key to attracting quality and highly-skilled employees is to partner with recruitment and talent management experts that have a strong understanding of the public sector, and a wealth of tools and data-driven insights at their disposal to aid in the search and selection process.

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