Article

Still in bloom?

Challenges facing temporary labour

The temporary labour sector is facing a period of change and uncertainty. Temporary labour agencies face significant challenges from a raft of legislative and administrative changes and increased scrutiny from HMRC, all whilst operating with typically thin profit margins. Further regulatory changes, as well as threats from new challenges such as automation and the impact of Brexit on the labour market are set to increase the strain. This report is relevant to both temporary labour agencies who need to assess these changes but also to lenders who need to be aware of the headwinds faced.

Overview

The recruitment sector (temporary and permanent labour) is often considered a barometer for the wider economy. The recruitment sector continued to grow in 2017 buoyed by a resilient labour market.

Our 2017 Recruitment Index (in association with APSCo) found that the majority of recruitment agencies reported an increase in net fee income, however, 24% of agencies reported a decline in net growth, the highest level recorded since the index began.

This report highlights key characteristics of the temporary labour sector and the drivers impacting current and future performance.

Temporary labour agencies have been adversely impacted by legislative and tax changes leading to increased stress in a sector where agencies are typically highly leveraged and the ability to raise additional finance in times of stress is limited.

We take an in-depth look at the challenges faced - from increased regulation and tax changes, factors impacting profitability, macroeconomic drivers and new opportunities and disruption including the potential impact of Brexit on the labour market and the advance of digital technology - and examine the opportunities which could arise.

We provide insight into the challenges faced and advice for lenders and other stakeholders to navigate these challenges more effectively.

Looking ahead

Lenders and other stakeholders should be aware of the headwinds faced by temporary labour agencies in order to be able to act quickly in the event of signs of stress.

Temporary labour agencies need to assess the impact of the regulatory and tax changes and take steps to mitigate risks and maintain profit margins.

‘Agencies in the temporary recruitment sector face a seemingly endless wave of new regulation and struggle to maintain profitability. Margins are under constant pressure but there remain opportunities to make strong profits particularly for those supplying the white collar or niche sectors where interest from Private Equity is focussed.’

- Clare Boardman, Partner, Restructuring Services

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