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Cleansing Public Servants Tax Arrangements

February 17, 2012 in Pay and Reward, Public Services

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Recently, it was revealed that the head of the Student Loans Company was earning money through personal service company, a report was ordered into how many people, across Government, were in similar situation.

It seems the report ordered by Danny Alexander and parallel journalistic investigations have revealed there are of many cases where senior roles have been filled on a long term basis by people who chose to be rewarded through personal service companies, thereby reducing their tax bill.

While the practice of working through personal service companies is not illegal and suits many independent contractors, the use of such mechanisms is generally unsuitable in the kind of situations being uncovered by recent investigations.

Comments from parts of government, reported in the Guardian, highlight the messy situation organisations have placed themselves in, where the distinctions being drawn between “civil servants”, “non-payroll workers” and payments to “companies” are quite hard to explain to the average man in the street.

When the Government called for transparency in public sector pay arrangements, it probably did not have this kind of scrutiny in mind. When it has been looking to reduce tax evasion, to find such cases at the heart of public administration is embarrassing. Read the rest of this entry →

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Public Service, Reward and Politics

February 16, 2012 in Pay and Reward, Public Services

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In healthcare and other public services some are considering linking pay progression more closely with individual performance rather than reflecting “time served”.

If pay can be linked to effort and achievement, this would provide an incentive for improved service delivery as well as better control of costs.

Public services rarely pay large bonuses; it neither easily fits the organisational culture, nor the motivations of many employees (or managers). However at a time when public services are under enormous financial pressure, we hear regular calls to find ways to get more from less. Performance-related pay could support this.

Attractor reported, in an earlier article, the conclusions reached by Hay Group that there was no reason to apply performance-related pay and  bonuses to public sector organisations, despite the challenges identified by detractors.

It seems, for some reason, politicians and the public find it hard to reconcile themselves to the idea public servants might need motivating in the same way as those working for profit-making organisations.

Linking Performance and Reward Successfully

Political pressures are probably the least challenging aspect facing public sector organisations considering performance–related pay. A public sector organisation choosing a performance pay strategy has a significant number of hurdles to navigate –

  • Assuring employees and their union representatives the management team are approaching the subject sensibly and sensitively,
  • Creating a framework for performance management which suits the business environment and the culture of managers and teams in the organisation,
  • Identifying the most appropriate links between a performance management framework and the pay system,
  • Addressing the significant culture change needed to help public servants make a performance management system work for them and their clients.
  • Deploying and supporting the use of performance management tools across the organisation to make performance management effective for people, teams, the customers and taxpayers.

There are supporters and detractors of performance pay in public services. No performance management arrangements can make a broken system work effectively.

But sensible use of targets and sound management practices can encourage people to focus on the medium and long term performance of organisations, teams and individuals. Read the rest of this entry →

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Have Shared Services Reached a Tipping Point?

February 6, 2012 in Corporate Services, Public Services, Shared Services and Outsourcing

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Should Public Sector Organisations Invest In Sharing?

The Coalition Government has been increasing the pressure on all public service to save money and shared services are seen by many as an ideal solution to the challenge of efficiency in the back office.

For many years, there have predictions the UK’s public services would move swiftly towards shared services as a solution for quality and efficiency challenges.

Have we reached a point where the majority of public sector organisations will invest money and effort in adopting shared services?

It seems, as a result of the environment of austerity, public sector managers are finally contemplating moves they have resisted for a long time. The number of actively engaged providers has been increasing and shared service landscape is changing.

From the latter part of 2011, it has become evident the shared services market is both maturing and becoming increasingly competitive – even though the Coalition Government has taken care not to endorse shared services as an appropriate solution for all organisations.

Looking at the government’s rhetoric, people could be forgiven for thinking government would be pushing extremely strongly on a programme of diversification and de-centralisation rather than centralising and sharing.

The government appears caught between it’s pressing need for increasing efficiency (and a belief operating at scale delivers this) and the instinct to devolve power and allow decision-making at lower levels. In a report covered in Outsource magazine in September 2011, Colin Grace, a director of Praktis Solutions advocated a more concerted effort towards delivering a small number of sector-wide shared service operations suggesting the Cabinet Office could provide stronger financial incentives. However the time for “mandated solutions” may have passed and, in the context of many high-profile projects demonstrating mied results, it’s more likely the government will “light the path” and allow local decision-makers to draw their conclusions – leading to a more “market-based approach”. Read the rest of this entry →

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Tax Avoidance and Evasion in Government?

February 2, 2012 in Pay and Reward, Public Services

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The pressure of public scrutiny is increasing on senior, well-paid individuals in all areas of work after a Freedom of Information request. Concerns have arisen that senior public servants have been abusing their position by working in ways that are “tax efficient” and thereby inappropriate.

At a time when high pay in the private sector has been a matter of concern, it was pretty obvious that arrangements for senior positions in the public sector would soon come under increased scrutiny and calls for transparency.

With news emerging the Student Loan Company’s chief executive, Ed Lester had his salary paid through a personal service company (a legal framework with no direct employment relationship and tax advantages), the Coalition Government’s focus on reducing tax avoidance has been called into question.

Personal service companies are generally accepted as perfectly legal and legitimate mechanisms for many independent contractors to work with client organisations. This arrangement can be entirely legitimate and suit both parties, particularly where the contractor works independently with multiple clients and where permanent or direct employment is not appropriate. Such companies can be an effective way for contractors to work and have certain tax advantages.

Tax legislation generally prevents such arrangements being abused as, where HMRC takes the view the working relationship is one where direct employment is the “real” situation, the contractor would normally be liable for PAYE and National Insurance in the normal way.

This is managed through the application of IR35, introduced in 2000 with the aim of eliminating inappropriate tax avoidance behaviour and generate tax revenue.

Since the introduction of IR35, tax lawyers have expressed concern that HMRC have been “bashing” truly independent contractors and entrepreneurs with this legislation to raise revenue rather than tackling real tax evaders.

Initially at least, there has been no suggestion the particular case in question has been put in place illegally and no details about the tax treatment of the arrangement have been disclosed, though it has been suggested “tax authorities” had approved it. The SLC has apparently defended the arrangement, producing figures suggesting it was saving the organisation around £88k over two years by avoiding head hunters fees, and tax and national insurance contributions. Commentator have highlighted potential financial benefits of between £25k and £40k for Mr Lester. Read the rest of this entry →

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