On guard over "labour only" contracts
Security industry strives to restore industry reputation and plug "bought-in labour" loophole
Security guarding is now a ubiquitous presence on the UK high street, a uniform response to what has become a lack of traditional uniformed support from cash-strapped Police constabularies who have, at best, had a piecemeal approach to retail business crime, even when it involves increasing levels of violence against store colleagues.
In recent months, LP Magazine Europe has frequently referred to the growing menace of violence as the default behaviour of some customers. This behaviour comes not just from challenging shoplifters, but also increasingly from challenges at the point of sale from routine requests for receipts or identity or age-related confirmations, as highlighted in reported figures from the British Retail Consortium (BRC), the Association of Convenience Stores (ACS), and shop workers union USDAW around consistently higher levels of aggression, intimidation, and actual assaults.
Into this Police response vacuum, particularly at high-risk stores, security guards are deployed as a deterrent, albeit reluctantly by many retailers who view their presence with a mix of ambivalence and antipathy. Many have concerns around brand reputation and the impact of their presence on the frictionless customer journey. Others see the guard as a "distress purchase", rather like having to get a new boiler or a new tyre they can't operate without and resent what they see as a high payment for a service that should be carried out by the Police, for whose presence they have already paid through business and local authority council tax rates.
The cost of guarding is undoubtedly one of the highest expenses in the traditional LP budget. This fact is compounded by the need for more guards to Police the ever-decreasing thin blue line and issues including the increasing regulatory cost of the National Living Wage in a flexible gig economy where pay rates are increasingly depressed to levels requiring individuals to take on more jobs to make ends meet.
In this febrile atmosphere, a perfect storm is swirling around the legitimate provision of guards, with established and respected security companies who employ directly or indirectly licensed, accredited, and vetted officers unable to compete on a level playing field with the kind of rates offered by less scrupulous organisations who provide guards with none of the above qualities or, indeed, any audit trail of National Insurance (NI) contributions or pay as you earn (PAYE) tax details. These shadowy businesses, which often appear, disappear, and reappear under a different name when Her Majesty's Revenue and Customs (HMRC) begins to make enquiries, are often linked to broader criminal activity, including modern-day slavery, importing cheap, illegal labour to fulfil increasing demand for cash-in-hand officers or to make up the numbers on onerous event contracts.
These businesses do not occur in a vacuum. Instead they are a product of prevailing supply and demand market forces that are driving a need for cheaper security on the high street that cannot rely on Police support. The situation has created an electronic-auction driven "race to the bottom" for procurement teams under pressure to make a "distress purchase" at the lowest possible rate. Security businesses with major retail contracts must often flex their recruitment of officers to cover expanding estates or new risk regions and consequently bring in subcontracted officers.
Although retailers blindly assume they are getting fully accredited officers, a loophole in the Private Security Industry Act 2001, under which the Security Industry Authority's (SIA) Approved Contractor Scheme (ACS) operates, means legitimate subcontracted assignments are afforded the full protection of the law, while "labour only" agencies supplying "agency" labour officers are not subject to the same checks and assessment processes. Under the SIA rules, a subcontractor is defined as "a self-employed individual (sole traders) who is responsible for delivering the customer contract on behalf of the ACS company; or a limited company (including companies with only a sole contractor director and no employees) responsible for delivering the customer contract on behalf of the ACS company". The definition then goes on to specify that "agency staff, labour providers, or individuals provided as labour are not considered to be subcontractors".
This distinction means that they fall outside the normal rules of engagement, which has led to the situation of security businesses and retailers inadvertently taking on guards without the required legal protection, a fact that has also come to the attention of the HMRC because of the potential PAYE shortfall to the Treasury. The HMRC has then gone after the employing businesses for the outstanding tax only to find that it has gone into administration or provided bogus paperwork trails.
In these situations, the employing businesses may find themselves exposed to the debt as the HMRC launches brand-damaging investigations into the nature of the contracts and the legal status of the labour provided. This is why the security industry is calling time on "labour only" contracts that seek to undercut the more respectable competitors in the market and give the industry a bad name.
David Stubbs, managing director of SSGC, a national guarding business based in Swindon, is calling upon those industries dependent upon security guarding to ensure that they write into their contracts that they will not employ labour-only contracts without prior authority in the same way that they place restrictive covenants on the use of subcontractors. David said, "We all understand how the industry works and that it needs to be flexible. It's the way the whole industry absorbs labour. We all get calls from businesses to say, "We need an officer here in five hours", but the way it is currently managed raises serious questions for the industry and transfers significant risk to the buyers".
He is currently involved in a protracted legal action after terminating a contract he had with another SIA-approved business that he discovered was using bought-in labour guards working with his customers. In fact, of more than 100 security guards provided by the subcontracted ACS company, not one turned out to be an employee with the correct taxation arrangements.
"This clause has developed a loophole that means that although a company which subcontracts to another company has to be another SIA supplier, it can, however, currently opt for a labour-only supplier arrangement. This means the provider does not need to be SIA approved, and this avoids all industry scrutiny", said David, who has, since the discovery, been evangelising about the issue to the industry.
David continued, "Thousands of staff are working for non-approved contractor scheme ACS companies in multi-layer opaque supply chains that avoid taxation, worker's rights, and vetting. What is worse is that there is no requirement under ACS rules to inform customers who can be involved in labour-only supply chains with specific HMRC obligations without their knowledge".
If a retailer outsources security officers without specific contract clauses managing labour-only agreements and without conducting the required due diligence checks, they will have no redress and will be liable for paying all PAYE, VAT, and National Minimum Wage for those officers following an investigation. Some of the largest security suppliers are using subcontractors who regularly use labour-only agreements. The risk to retailers is huge, and there is very little sign of it being managed.
"This is undermining confidence in the security market as it means the industry can't get proper rates for guards", said David. "Retailers need to be aware that the HMRC are aware of this issue, so checks need to be undertaken as to their own [terms and conditions] to ensure they don't have labour-only arrangements in place. And it's not just guarding - this could be everything from security to cleaning.
"The rules mean that businesses that outsource need to understand their supply chains. This has been on the HMRC website since 2014, so it is nothing new. Currently the HMRC is focused on door security, but it could be any subcontracted person in the business, which could be extremely brand damaging for businesses who are exposed to this risk".
SSGC has spent the last year investigating the practice, and it has found evidence of businesses retrospectively creating fake payrolls and pressurising staff to say that they have been PAYE all along.
"Our investigations have opened up a supply chain of over thirty labour-only organisations. I think we are dealing with in excess of 600 security officers to date. Those are the ones we have come across. Many of these businesses are closing down and opening up as other entities. I have seen documents of liquidations. We have also discovered through a Right of Inspection staff being paid less than the minimum wage or not being paid at all. With one company, we discovered they were running two payrolls, one of which was fraudulent.
"This practice is toxic for the industry. If anyone takes on subcontractors, they have to inform the HMRC about their payments every quarter, and so far to date, we have uncovered 1,607 people who have been wrongly classified as labour only and are now PAYE classified", said David, who is meeting the head of HMRC taskforce to discuss this issue and is in discussion with his customers and the wider retail and hospitality industries. "This could be a front for criminal activity and what everyone needs to understand is that the industry is facilitating the normalisation of activities such as modern-day slavery. All the companies so far investigated use the ACS shield, so this is exposing the gig economy at full throttle".
David wants the industry to restore the sheen of the ACS badge so that businesses procuring those services can have confidence. "We want to ensure that you can plan staff deployment without having to use labour-only officers. This is where the SIA needs to show real leadership. We cannot have situations where these unvetted people are working with clients and members of the public, but until action is taken, I fear that people in the industry won't expose it because of the work needed to put it right. SSGC are the only company so far that is offering a guarantee that no labour-only contracts are within their supply chain.
"Labour-only rogues degrade the strength of the ACS brand to be delivering something that is substandard. If we are to maintain that this is a professional service, this practice has to be gone from the industry. That means we all have a responsibility. As well as being security professionals, we have to be experts in recruitment, vetting, capacity planning, and resource management".
A former military Policeman, David is asking other businesses to join the campaign to raise awareness. "We are asking for businesses to check the [terms and conditions] of their contracts with their security providers because we are never ever going to be in a position to call ourselves true industry professionals if we don't get this right, and the SIA has so far been a little lame in this."
NSI New Code of Practice
The National Security Inspectorate (NSI), the leading independent certification body whose mission is to raise standards within the industry, has also been looking at the issue and is now introducing a new code of practice. Its argument is that while recognising that the buying in of additional support to offer businesses the ability to scale their security operations is common practice, it has to be rigorously managed because of the obvious risks to safety and security of the public and the integrity of the supply chain and the potential exploitation of workers.
In a recent interview, Richard Jenkins, CEO of the NSI, said, "If the procurement of additional labour isn't well managed, this can manifest itself in an absence of adequate checks and monitoring when it comes to deployed Security Industry Authority (SIA) licences, security screening to BS 7858, adherence to the Working Time Regulations, the paying of minimum wage rates, and checks on right to work and employment status. With growing industry awareness of the Gangmasters and Labour Abuse Authority's (GLAA) activities, as well as feedback received by the National Security Inspectorate (NSI) relating to poor practices potentially compromising industry credibility, we took the decision to develop a new Code of Practice, NCP 119, for the "provision of labour in the security and events sector"."
The NSI invited Darryl Dixon, director of strategy for the GLAA, the Government body that works in partnership to protect vulnerable and exploited workers, to speak to approved companies about the challenges for the security sector in relation to exploitation and criminal activity. Its teams investigate labour exploitation across all sectors in England and Wales, covering offences against the Gangmasters (Licensing) Act 2004, the Employment Agency Act 1973, the National Minimum Wage Act 1998, and the Modern Slavery Act 2015. Sectors the GLAA has highlighted as being vulnerable to labour exploitation include those with subcontracting arrangements as they are harder to monitor. Knowledge of suppliers and those across the supply chain to whom the organisation does not directly contract is therefore paramount.
The new NSI Code of Practice has been welcomed by NSI Gold approved companies and is due to be published imminently. It is expected that there will be a grace period of twelve months before adoption of the code becomes mandatory for NSI Guarding Gold and Silver approved companies. In practice, it requires security companies to work only with labour providers who adopt the code and gain NSI approval. The intent is to ensure, and be able to show buyers, that professional standards and staff welfare are maintained, as demonstrated through regular independent audits and the holding of a Certificate of Approval.
The requirements of the code include those related to organisational best practice, personnel, sale of services, operations, and documentation and record-keeping. The personnel requirements relate to recruitment, training, employee terms and conditions (T&Cs), and uniform. The sale of service requirements includes the transparency of contractual documentation as well as the contract terms themselves, while operations covers the deployment and management of staff and suppliers, and confidentiality. The personnel requirements include governance, record keeping, and competence in recruitment and selection, T&Cs for employees, the right to work, and security screening.
Training is a significant requirement of the code for those organisations employing security officers and event management operatives. The code requires organisations to have clearly defined and documented training policies, providing induction training to all staff in matters related to employment and the organisation's procedures, with training demonstrably completed before each employee is deployed to an assignment.
Maintaining records of all training undertaken by staff is necessary, and ideally, those records shall be retained in both soft and hard copy format. The records shall include details of training undertaken, such as date of training, the subject matter, and details of the individual(s) delivering the course, including the signature of both the trainer and trainee. Records should also be kept as to whether the training was delivered externally or online.
Non-compliance with the new code would manifest as the absence of adequate checks and monitoring of deployed security officer SIA licences, security screening to BS 7858, adherence to the Working Time Regulations, the paying of the minimum wage, and checks on right to work and employment status. The NSI says supply chain partners' agreement with the Code of Practice will help ensure security is not compromised and that integrity is maintained in meeting statutory and legislative requirements, staff well-being, and relevant environmental, social, and governance criteria, thereby reinforcing best practice. Every company awarded NSI approval meets the relevant industry standards for the security and fire safety services they provide. Every one of these companies also operates a quality management system or business operating system, and its board of directors has been assessed.
There are several checks and balances that, for a buyer, can offer confidence when it comes to choosing an NSI approved company with which to work. NSI approval is a strong endorsement of competence, because to maintain approval an organisation is subject to ongoing annual audits. NSI auditors check competence, as described in British Standards for the service(s) provided by a given business. These services must be evidenced and/or practically demonstrated. Improvement notices are issued when processes, training, or customer service procedures are identified as being non-compliant. They require root-cause analysis and effective corrective action to be taken and evidenced to the NSI as part of a cycle of continuous improvement. This degree of scrutiny is the added value of independent audit.
The NSI maintains that it is vital for anyone choosing a guarding service supplier to ensure the organisation they select holds a valid Certificate of Approval relevant to the services they seek to buy. The expiry date and scope(s) of approval are clearly shown on all Certificates of Approval issued by the NSI. Scope is important since it defines the competencies for which approval is held. For example, competency in alarm system installation is of no relevance to security guarding or door supervision services. Any doubt as to the validity of approval can easily be checked directly with NSI. In regard to the people-related services such as keyholding or security guarding, for example, the SIA licence checks for criminal records, evidence of training, and competence.
As an independent body, the NSI holds United Kingdom Accreditation Service (UKAS) recognition for the services it delivers, which underlines its competence, impartiality, and capability. UKAS also routinely "checks the checkers" with rigorous audits. Ultimately, this new NSI Code of Practice will further enhance confidence in NSI approval as an indication that the guarding services provided will be professional and technically secure.
The security industry is a necessary complement to ever-diminishing Police lines, but a lack of transparency means that it continues to be on guard and bent out of shape by poor practice and headlines that undermine its reputation. The NSI's new Code of Practice is the latest move to raise standards in the sector regarding the provision of labour and ensure it meets best practice.
David appeals to businesses to contact him if they have been affected by the issue and to make sure that labour-only terms have no place in subcontracted agreements. He can be reached at email@example.com.