The need to remain competitive in the market has emerged as a key driver for the use of travel & subsistence (T&S) schemes within recruitment, according to the results of a special survey by Recruiter, supported by labour provider Staffline. 

The online survey of recruiter.co.uk readers carried out in late January indicates that both among those who willingly operated a T&S scheme and those who felt forced to do so, allowing staffing businesses and employers extra financial capacity to be more competitive in the rates they charge clients was a key factor.

The survey found that of those who unwillingly operated a T&S scheme, 77% said they did so because higher margins allowed them to be more competitive. Among those who willingly operated a T&S scheme the figure was 50%. 

Respondents to the survey, who agreed that Recruiter could contact them for a follow-up article, say they are under huge competitive pressure to use T&S schemes. These schemes are designed for temporary workers who travel to temporary workplaces to reclaim expenses. However, critics of such schemes argue that they take workers’ pay below the minimum wage, and that the savings in National Insurance and tax made by scheme operators by paying expenses rather than wages are not shared with the workers. 

Chris Gorton, chairman of multi-sector staffing company Heads Recruitment, is continuing to hold out against using T&S schemes, despite telling Recruiter he is under “enormous pressure” from competitors who use them. “The general effect is that it drives down margins,” he says. 

Another unnamed respondent to the survey, who does not operate a scheme, comments: “We are up to 75p per hour dearer in our charge rates as a result of such schemes.”

That recruiter is not alone; 42% of those who say they don’t operate a T&S scheme do so on principle, despite all of them admitting it puts them at pricing disadvantage vis-à-vis their competitors who use these schemes.

“We don’t have a choice,” Jo Caprelian, managing director of independent multi-sector recruiter Central Recruitment Agency, which uses an umbrella company to run a T&S scheme for many of its workers, tells Recruiter. 

“We have had to lower our margins because the competition uses them. If the schemes weren’t there we would only have to reduce them by a certain degree, but because they do exist and the clients know about them, we have to reduce margins further.”

She says that while years ago margins were £2-£3 an hour, these schemes have helped drive down charge rates to 50p-60p.  

Among those who say they willingly run a T&S scheme only 8% say they do so solely to increase margins, with 50% responding that it allows them to be more competitive when pricing. 

This suggests that T&S schemes are in many cases not so much boosting agency profits, as allowing them to stay afloat against those others who use them, and that in many cases it is the client who is the major winner. 

As another unnamed respondent to the survey comments: “In the race to the bottom some agencies could not wait to cut their prices at the very beginning of the downturn by using these schemes. All that did was give clients the tool to bash the rest of us with. 

“Some companies used this and told clients that agencies that did not operate them were over-charging, so clients who themselves were forced to look at cost cutting accepted them as the ‘norm’ and will now look to cost rather than service as their first consideration.” 

The survey indicates a high level of general dissatisfaction with the ethics of T&S schemes, with 38% saying the industry would be better off without them. Many of those responding to the survey use words such as ‘dubious’, ‘evasive’ and ‘cheating’ to describe them.

Two in-house recruiters say they don’t run a scheme on principle. However, another who wishes to remain anonymous comments: “It is perfectly reasonable for employees to reclaim expenses when travelling to temporary workplaces.”

Gorton and Caprelian are among many participating in the survey who call for a level-playing field, with Gorton demanding tougher action by HM Revenue & Customs and the Gangmasters Licensing Authority. 

Andy Hogarth, chairman and chief executive officer of Staffline, calls for “a clear set of rules from HMRC both which stop the possible abusive use of some schemes and sets out clear guidelines of when and how their use is acceptable”.

T&S schemes remain a controversial issue within recruitment, with our survey indicating a virtual split down the middle – 51% of respondents operate a T&S scheme, against 49% who don’t, while 42% agree that the industry would be better off without them, with 38% disagreeing.

However, the survey also indicates that competitive pressures are pushing many recruiters into operating these schemes. While those who don’t operate T&S schemes are clearly at a competitive disadvantage in terms of price, even those who do use them may find that their advantage is only fleeting as clients seize on them as just another opportunity to squeeze their suppliers. Difficult though it is to achieve, competing on service and quality and less on price could be one way to avoid this depressing scenario.

In total, 110 recruiters responded to the survey, with 63% being agency recruiters, 6% in-house and 6% RPO providers. The remaining 25% did not provide this information.