At last year’s European Job Board Summit our good legal friend Kevin Barrow, from International law firm teamed with digital business law specialist Osborne Clarke. They spoke about the broad issues on regulation of on-line recruitment and on-line staffing . They also touched on the equally thorny issue of Data Protection.
With the proposed changes regarding ‘on-line exchanges’ and the constant issue of Data Protection being looked at by the EU, Kevin has kindly agreed to provide some updates to Jobg8 and our Job Board community about changes that could impact on us, our business and our users.
1. 2014 UK proposals re regulation/deregulation of online exchanges etc.
Background: In the UK there was a review (in 2013) of whether recruitment regulation in the UK needs to apply to on-line exchanges and social media recruitment etc.. At the request of the UK Government, Osborne Clarke coordinated industry responses to this consultation. This review will to a certain extent be a case study for how other EU countries respond to the new phenomenon of online exchanges and social media recruitment. Current restrictions apply to online exchanges etc. (in the view of the regulators) and these restrictions include things like prohibitions on charging work-seekers and requirements to check candidate backgrounds and qualifications.
Latest news: The UK Government is still planning to exempt “job sites” and Osborne Clarke are pressing for that to include on-line exchanges. There is a danger the exemption will not apply if matching software is used to help select candidates/hirers – nearly all service providers use algorithms to make the service more efficient and useful and so this is a ridiculous condition.
Next step: The UK Government is due to issue new draft legislation any day and there will then be a short period of 1-3 months in which ourselves and industry players can comment on the proposed wording before it is finalised and (perhaps in late 2014) becomes law. If the worst comes to the worst and the exemption is too vague/narrow there may be workarounds.
2. How VAT in the EU affects online exchanges
Background: In the EU services (as well as goods) are subject to VAT unless within exempt areas (healthcare, insurance, education and banking are the main ones). If an on-line exchange operates as an intermediary it would generally have to charge VAT on the total fee (its fee plus the worker’s fee). Some labour exchanges operate as contractual intermediaries in the US. In Europe there is a problem with this model because it attracts VAT sales tax. In other words the hirer ends up paying 20-25% more for the same value of service as in the US. There are workarounds, but they are not straight forward.
Ideally online exchanges should operate on an “agency” basis but this can mean that contract models which have been carefully developed for the US have to be changed for the EU which obviously is a nuisance and affects scaleability of the service offering.
Alternatively online exchanges can try to position their services so that they are offshore (which can avoid VAT) but tax authorities in the EU can set that aside e.g. if they are deemed to be digitised services.
Latest news: There are a couple of test cases in the UK about all of this at the moment (to be heard later this year).
Next step: Await the test cases, apply the agency model if possible and otherwise consider work arounds which do not trigger tax investigations.
3. Payroll tax – New UK law in April 2014 affecting online exchanges who act as intermediaries
Background: Most online exchanges treat at least some of the workers they supply as self-employed independent contractors. In most countries any liability for worker misclassification (eg payroll tax, social security or labor law rights) falls on the hirer. In some countries the liability falls on the intermediary (i.e.online exchange/intermediary). In the UK the general rule until now has been that that liability remains with the worker.
Latest news: The UK Government introduced a new law in April 2014 making intermediaries (including online exchanges) liable for any worker misclassification. This means they will be liable for income tax and social security deductions relating to the workers they supply UNLESS they can prove to the tax authorities that the workers are self-employed. They will also have to report to the tax authorities all payments made to workers. Class actions on a grossed up basis are clearly possible, with the online exchange bearing the burden of proof.
Next step: Operating the agency model is likely to reduce risk. Otherwise online exchanges may need to partner with employment intermediaries who can demonstrate reliably that they operate payroll tax.
4. Data protection and privacy
Background: EU privacy laws are more stringent than in the US, and there are proposals to increase penalties in late 2014 or early 2015 to as much as 5% of worldwide turnover.
Latest news: The Edward Snowden saga and reported US surveillance activity in the EU has focussed EU regulators on whether the US is a “safe” place for data to be held about EU citizens. It is possible that this Summer “Safe Harbor” status will be withdrawn from US companies
Next step: US holders (including many recruiters and exchanges) of data about EU citizens may need to introduce from Summer 2014 far more stringent data privacy arrangements if they are to store or process data in the US and avoid massive EU fines
You can find more information about what Osborne Clarke do in our sector below and we are grateful to Kevin for keeping us abreast. He’ll be joining us at our third European Job Board Summit which will take place later this year.