Work, Reconstructed

Xenios Thrasyvoulou (CEO & Founder of TalentDesk and PeoplePerHour) and Glen Hodgson (CEO & Founder of Freelance Movement) discuss the main compliance issues that are faced today within the talent and HR sectors.

Tune into the Work, Reconstructed podcast on Spotify below, watch the interview on YouTube or continue reading for the full details as Glen and Xenios and get under the skin of entrepreneurship and take a deeper dive into the world of work in the digital age.

Glen: Hello and welcome to another edition of Work Reconstructed, which is a podcast on understanding entrepreneurship and also looking at the future of work in the digital age. And today I'm delighted to be joined by the CEO of Talent Desk, Xenios Thrasyvolou. How are you doing, Xenios?

Xenios: Doing great, thank you. Thanks for inviting me.

Glen: Good to have you on. Now, at the moment, we're hearing a lot in the world of work about compliance topics and particularly issues that companies and organizations are featuring. So it would be great to sort of hear a little bit about, from your side, some of the main compliance issues that are being faced today within the talent sectors, but also the HR sectors as well.

Xenios: Well, fundamentally, the problem is that the world of working has completely changed, especially post Covid - people went to remote work, etc. And so the system, tax system in particular, and the legal system, which is there to protect largely the tax system when it comes to these issues, for the government, has not evolved. It needs to, because the boundary of what constitutes judicial employment as we used to know it, and what it is today versus contracting or freelancing, or you working under your own legal entity, all of those boundaries are blurring. And it's just increasingly difficult to ascertain what bucket you fall into. But again, standing a little bit further back from that, I would question, why is it even important to ascertain that? Why try and solve a problem when you can just prevent it? And originally, the question was relevant only as far as tax collection. I think we've addressed this in a previous podcast, but really, it's just easier for the government. If you take the UK in particular as an example, to levy its NIC contributions by slapping at 13.8% across the board on employers payroll.

And it's just easier to monitor, it's easier to collect when you've got everyone working independently in their own companies, putting expenses in, those companies paying themselves dividends, maybe not even having an income, but just dividends, the whole collection becomes harder. And that's really the crux of the problem. In a world where employment was the vast majority of the way people worked, and consultancy or freelancing was an edge case that wasn't that important. But in a world where it's gotten flatter and people choose now to be independent and travel the world and work remotely and work from their own home, just be in control of their own time, labor, it's a kind of bigger problem. We're fighting the problem as opposed to trying to prevent it. I think that's the wrong approach.

Glen: And how is it working from the legal teams and HR departments within companies and organizations? Are they understanding this or are they sort of risk averse and therefore maybe don't want to get down in the weeds of the issues and look into it. It's easy just to say a flat no as opposed to getting under the skin of these things.

Xenios: No one understands it. Not even employment lawyers who are basically specialists in this. Honestly, pick up the phone, talk to ten employment lawyers and tell them, I've got this situation. Is this person an employee, a contractor, consultant, etc.? They will only give you vague advice because the authorities themselves are offering advisory based on guidance. It's guidance based. It's not something that can be black and white. So if you go to the HMRC website or the equivalent of in the US, the IRS, and I'm sure in lots of other jurisdictions use the same thing, it's based on guidelines. Does it feel like employment? Does it feel like contracting? Don't forget, by the way, compliance is not just about whether you're a contractor or employee. There's all sorts of other compliance issues. Every industry has different regulatory bodies and there's compliance specific to those industries. That's fine. In some industries, you need to have specific insurance and so on and so forth. If you've got a builder coming over to your house, you need to have certain things in place. That's all good. And I think systems need to be in place to make sure that you're compliant, to deliver the job that you're hired to do, or you're practicing ethically and correctly and so on, but when it comes to this whole question of what are you?

Yeah, to your point, you understand it. Nobody does, because it's all guidance based. And so there's all this muddle and this gray area that everyone's trying to navigate and it's becoming increasingly fearful because it's not really defined. And even if you follow the guidelines and based on these guidelines you take a view that actually this person is a genuine employee or whatever, you're still not 100% guaranteed. So if something does happen, some sort of claim for whatever reason, then you really aren't 100% protected. I think all of that needs to change.

Glen: So is this a situation whereby government policy or legislation, regulation needs to be tightened up to actually fall down on one side? Or the other, to have much better definitions of what is an employer, what is an employee, what is a contractor, what is a consultant, so that we can have more firm definitions of which bucket of activity individuals fall into?

Xenios: But that's why I said it's harder to solve an ill defined problem when the markets change than to go back to its roots and try to eliminate the problem. Prevention is always better than cure. So let me ask you this. Why does distinction matter fundamentally? Imagine there wasn't a distinction in jurisdiction today, or you're creating an economy from scratch today. Why does it matter?

Glen: It really doesn't. And I think this is a great issue, that the means and the ends can be the same thing, and people should have the flexibility to choose when, where and how they earn money. Sometimes it can be from an employment situation, sometimes it can be contracting on different projects. And we seem to be sort of creating these artificial boxes just to keep our legacy issues happy as opposed to looking at the world as it is now and treating it as such.

Xenios: So in jurisdictions, there's not that many in the world, but they do exist where there's no income tax. Does this matter? Absolutely not. And this is what we addressed last time. Ultimately, what comes down to is tax collection. But tax collection hasn't reformed since in this domain, for a very long time, the world has moved on. But if you look at every year when the chancellor announces the budget and different tax changes, a lot of it has to do with whatever the property markets evolved and the way they kind of collect stamp duty or whatever it is, changed in line with that. The problem is that in employment, the employment landscape and the nature of employment has changed dramatically, especially in the last couple of years. There's not been any change whatsoever in tax and that's the problem. So you're trying to address a tax collection problem through distinctions of types of employment. When that distinction is blurred and becoming more and more blurred, it's only relevant really to tax collection. Okay, so in a world where, let's just say theoretically, if you redesigned a system and everyone, no matter what you are, employee, etc., paid some kind of contribution to national insurance, regardless if it wasn't the employer's responsibility to pay that on the behalf of the company, of employees, which then creates this problem intrinsically. Problem solved.

Glen: Right.

Xenios: If you're collecting it in a way which is becoming broken as a channel because of the distinction, then you just need to change the way you do that. Right? And if you did, then guess what? No one cares if you're independent, contract or employee. Then you get to the real stuff that matters. You get to the stuff such as maybe the company cares because they want to retain you for longer, give you stock options, give you equity, etc. Or maybe they care because of intellectual property, which you can solve anyway with contracts. So then you get to the real nitty gritty of it, where all the employees in that instance, for example, want the security of maternity leave, etc., which are all things that I believe in.

But who should actually care is the person who is being employed and the employer deciding on “hey, you're a long term investment for us and we don't want you to work for anybody else. We want you to be an employee”. And that's the decision that it should be around, the fundamentals of the work itself and the employment. They're not really a contract. And it comes down to tax collection. That should change. It will change eventually. It's just going to take some time. I think it's just going to be a case of the government realizing that this is a bigger problem than it is because, like I said, as we see from the changes in the tax regime annually, they address the bigger pots. They're like, oh, this needs to change and we need to. Eventually they're going to wake up and realize that this whole distinction is ridiculous.

Glen: We're coming to a tipping point. But, you know, even just pre-COVID, this was sort of a niche thing, the open talent model. But now we're seeing so many more people coming into this, even in the European Union context, we're talking between 40 and 50 million people who are freelancers or independent contractors. The UK is also increasing rapidly. So, once we've reached that tipping point, there will probably be more of an impetus to look at the classification issue, because at the moment it's really revenue collection. Everyone's worried about making sure that they still guarantee the money that they've got for hospitals and schools and the rest of it. But, you know, the fundamental change needs to happen in terms of what is an employer and actually getting rid of a lot of these artificial bands and artificial criteria which are leading to this classification and misclassification in a lot of cases.

Xenios: Yeah, I agree.

Glen: So we need to sort of look at this. And, you know, do you think there's  enough discussion? Or thoughts going on at the level of decision makers and opinion formers in terms of how this system can work. That to really look at the future of work in a more joined up way and to think about better tax collection models and better classification of individuals and getting rid of these artificial barriers.

Xenios: I don't think so. But listen, I'm very detached from politics because of that reason. You know, it's politics, right? It's people that like having different agendas and like trying to change anything, it’s a nightmare. But is there enough thought being put into this? I don't think so. 

In the meantime, there's a lot of fear of this because the world has moved on. There's a lot of vultures out there who are capitalizing on it, unfortunately, by promising companies services that they can't actually deliver by the letter of the law because of some fake assurances that are around. if you're going to be misclassified, if you've done it wrong, then it's on us. It happens in so many markets, right? We've seen the financial markets. We've seen it everywhere. Yeah, right. Whenever there's some kind of asymmetry between regulation or definition of the law and what people are or are not allowed to do, although they know that it's unethical.

The banking crisis of 2008 is a very clear example of people acting, frankly, quite unethically on the borderline of what's permitted and what's not. But regulation wasn't tight enough, it then tightened up, etc. and then a big bang happened and then the question became big enough for people to really care. It's one of those areas where whenever there's a bit of that asymmetry, a couple of things happen. People become fearful and other people become greedy. That amplifies the asymmetry. And the people who become very greedy start offering things or selling things that they can't actually back up. It's happened in the financial markets. It's happening in this industry. And it will take one big blow up for people to start paying attention. It happened back then. It will happen again. The only thing history has ever taught us is that it keeps repeating. It's the same thing. And in different industries. There's talk of that now in insurance because of the way private equity deals are done in the insurance market. People are just going to, by nature, try and find gaps and capitalize from sort of these asymmetries to make money. Eventually it becomes a problem, and then it’s fixed… or addressed.

Glen: At the moment we seem to have an increase in scaremongering. Organizations are saying “you can hire people anywhere, we’ll take care of all the liabilities and compliance issues. Pay us this rather large sum and we’ll take care of it.” There’s people profiting from the current gray areas in the labor market, aren't there Xenios?

Xenios: Yes absolutely. It’s happening. There are some good places and some really corrupt places. Those people don’t care and they just want to make a quick buck. There is a lot of scaremongering out there in this freelancer/contractor management space and the Employer of Record (EOR) space. And adding to that complexity is that things change from jurisdiction to jurisdiction, so the US is very different. In the US it varies state by state. At least in the UK we don’t have that problem. It is a growing maze of logic that’s just messy 100%.

Glen: It is. And with all things that are new and developing, there could be some negativity as well. As you said, if one of these rogue actors were to cause problems in the sector then that would bring down the house for everyone, from the good actors to the less reputable ones. Everyone gets caught within the cross hairs. Then we have government policy or the authorities who will come in, look at this and take action. There’s also the negativity that this can spread along the sector itself and cause a lot of negativity for the future of work, the development of the labor market and a lot of the platform who were doing great things in good faith will also get swept away by this unfortunately.

Xenios: Yeah. I mean, we don’t really know. If you look at the changes with the ir35 in the UK, that is a good example. The government flipped the responsibility from one party which was the contractor to the company. That proved the point that they thought “this is going to make it easier for us to collect taxes” because now companies will be more afraid that the bill could be more punitive to them. It’s just flipping the responsibility, but it’s not trying to avoid the problem. It’s driving behavior based on who foots the bill and who’s responsible and that’s just the wrong way of addressing it I think.

Glen: Absolutely. It does push people towards traditional employment contracts in terms of what is a traditional perspective of what is an employer and an employee and the responsibilities that are very old fashioned and still being stretched, it seems.

Xenios: Yeah, look, I think the whole system needs to be re-designed and ultimately from the bottom up. In my opinion it should come down to the individual. Traditionally, a company decides to employ you and you decide to work for the company etc. If the system was to be rethought from the ground up - if you want to be independent and there is this registration you can do where you can file for independence and you declare a bunch of things which should not be guideline based, but actually in black and white, then you pay the same amount of taxes that you would otherwise. There would be no question to be battled with. At the end of the day the person who owns their time and labor and wants to be independent may miss out on some of the luxuries of being employed, but they want to do that. As long as you can sort out how you actually pay your taxes, therefore closing that gap of the government saying “are all these ICs paying the same amount? Are we collecting the same amount?”.

You’d also solve the scaremongering problem. If you come to me and you’re registered self-employed and you tick all the boxes, there’s no risk. I would take comfort that they are that person. Why should the company have to take a view as to whether that person is genuine or not. If there was a process for the worker to be not just guideline based, but beyond any doubt declared as an independent person. End of story. Then I hire you and I know that I can’t treat you like an employee because you’re independent, I can’t ask you to come to my premises where you do X, Y and Z. And that’s fine! But it removes all of this fear.

Currently, in the UK, especially with all this ir35 stuff, it’s just flipping the responsibility to the employer. You’re not really in control of the person either. All of it is just a broken system.

Glen: Yes. Is there some sort of mileage in having an opt-in procedure here that allows an independent contractor themself to decide what they are. We would take away this mandatory and shadowy behavior that it’s the authorities and decision makers who are deciding if you’re a contractor and what your status is. You should be able to go down this route yourself and decide by ticking a box and you’ll be put into a certain area where all these things are decided for you. 

A lot of people as well are deciding to be independent contractors, but given the way the policy is they’re being dragged down an employment channel that they have no desire to be following, Xenios. Could this be a way forward?

Xenios: It’s exactly what I said in a way, right? Whether it’s some kind of registration or opt-in, you as a person decides if you’re a contractor. At the end of the day if you want to be an employee, I can’t make you a contractor. I think it comes down to free will. 

In the end it all comes down to taxes. That’s why this whole gray area exists. If the way you opt-in was more black and white and you offer your services to a company who knows that this person has ticked those boxes, then that resolves that problem. Then, it really is just a question of tax collection. If everyone’s a contractor and nobody pays an IC then we have another problem, right? But as I said, that is a tax collection issue, not a “what are you?” issue.

Glen: It’s not trying to find a loophole to get around and avoid paying tax. Just having the freedom and flexibility in the choice that you want as an individual - that’s the main thing. Of course nobody wants to pay too much tax but at the end of the day the average person knows that they have to pay tax and they respect that. Within that mindset they can’t be trying to cut corners that would come back to bite them anyway. It must be done in the right way with these things.

Xenios: Good luck to us.

Glen: I think this is going to be talent lead as more and more people go down this route. We’re going to be in a position whereby the authorities will have to change as well and wake up to the reality of what's happening. What also will be a push from company’s platforms is that this is a legitimate choice that we’re making and we need to be able to find some sort of solution. Of course, continue paying the tax, but not having this 1940s/50s solution where we’re throwing everything back onto the employer.

Xenios: Yeah I think it’s imaginable within the next (X) number of years, the total percentage of the workforce that is on full-time traditional employment will shrink. Even young graduates want to travel the world, work from home, there’s loads of them. Traditional employment as we know it will only shrink. Then it will be evident to jurisdictions that they have a problem. If you say the population of workers with traditional employment is halved, then there’s a big issue when it comes to things like contributions. Then the government has a reduction in its income - then it will drive reform. But it will happen, right? Employment as a percentage will only drop, it’s happened already. People will not be on PAYE or W-2 in the US as standard as it is today.

Glen: Yes things will have to change. It can’t come soon enough because we have gray areas and loopholes in this classification of people and we’re looking for problems where they don’t need to exist. 

I really appreciate you talking about these compliance and classification issues from the inside and shining a light on what’s actually happening. Let’s hope we can revisit this in the not too distant future and see that the ball is already rolling in terms of having a better system of looking at these topics as well.

Xenios: I wouldn’t get our hopes up too much. However, I am an optimist when it comes to dealing with old bureaucracies and red tape. Historically I’ve not seen that lead to any efficient change unless they’re brought to their knees, that’s one area I’m not very optimistic on. Companies will continue doing the right things I think and there are scaremongers and vultures out there and I think the message should be for companies to be aware of that.

Glen: We live in hope and have our fingers crossed. Keep fighting the good fight in the right direction Xenios, it’s fantastic to be able to share your time and hear your thoughts on these topics. I look forward to hearing from you again soon.