EmploymentRecruitment

Plutus Payroll Saga Shows The Danger of Disruption

By June 8, 2017 No Comments

Companies like Uber and Amazon are much-vaunted for their bold and brazen disruption of their target markets. They are the standard bearers of a revolutionary age in which the rise of technology has made heroes of computer geeks and where disruption is worn as a badge of honour.

Our recruitment industry is often described as being ripe for disruption. We have our traditional and commonplace contingent recruitment process that nobody seems to really like doing, whether it be the client, the candidate, or even the recruiter themselves, but is one that is too lucrative and seductive to ignore. Many have tried to change it, and many have failed, but still the drums beat for disruption. Google Hire is next up to have a go, it seems.

The rise of contracting has seen a natural rise in the numbers of payroll-provider companies and recruitment companies are an essential cog in the wheels of this burgeoning sector. The established process would see a company decide to hire a contractor, then go to a recruitment agency to provide the contractor. Due to the rise in demand for contractors rather than permanent staff, recruiters have a much tighter talent pool of self-employed independent contractors to recruit from for their clients. So they would instead convince workers used to working on a permanent basis, to work as a contractor instead, often based upon the higher pay rate, flexibility and variety it affords. Often these workers don’t want the hassle of setting themselves up as an independent business and handling their own tax obligations, and so they work through one of these third-party payroll providers instead, essentially an employee of that provider, who take care of their tax obligations for them.

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We have a number of reputable companies in New Zealand offering these services and their commercial model is usually achieved by taking a small percentage of the contractor’s pay as a service fee. In Australia the contractor market is even further advanced than New Zealand and the number of payroll providers consequently much larger. So when Plutus Payroll launched a couple of years ago their disruptive new model really caught the attention of recruiters and contractors.

I first heard about it when interviewing an Australian recruiter who had moved to New Zealand a few months ago. We were discussing the payroll provider model and he revealed how his firm referred contractors to Plutus because they didn’t clip the ticket at all on the contractor’s pay, and apparently could be quite generous with their referral fees to recruiters for sending contractors their way too. The way they commercialised the model, apparently, was by making money off selling ancillary products to contractors once they had signed up, like loans and insurance.

It sounded unbelievable really, almost too good to be true. Turns out it probably was as Plutus is now embroiled in a AU$165m tax fraud investigation by the ATO. It is alleged that the company owners were taking the money paid to them by companies engaging with the contractors, paying the correct amount to the contractor but being somewhat less accurate with the amounts paid for tax and superannuation, skimming the money into other bank accounts and buying up large on luxury items like cars, jewels, watches and even a private plane.

Sheesh, it makes us recruiters look like saints in comparison, and it’s not often you can say that!

Mind you I’m sure there’s a few recruiters in Australia who did pretty well out of referring contractors to Plutus, while their frozen assets mean many contractors are likely to end up significantly out of pocket. I also feel for the ex-employees of Plutus who would have had no knowledge of the murky machinery operating in the background of their employer, and now have an Enron-esque mark on their CV’s.

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I’m all for disruption as a concept. I like change, and exploring innovative ways of doing things. But I’m not a fan of the word disruption used to describe this. It’s too cool-for-school and often disruption is sought for its own sake, to be seen as being cool and innovative, rather than actually being something inventive that helps the positive evolution of an industry or business model.

By all means be inventive, be innovative, be bold. But tread carefully if you want to be disruptive, as Plutus shows sometimes these things seem too good to be true for a reason.

Jonathan Rice

Jonathan Rice

MD at New Zealand rec-to-rec firm Rice Consulting and co-founder of on-demand recruiter offering Joyn. Recruitment agitator and frustrated idealist, father of two, husband of one, and lover of all things Arsenal and crafty beer.

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