Updates to this story
The off-shoring of jobs in information technology is a given - it's widespread public knowledge. But on-shoring hasn't received nearly as much attention. It means bringing workers from across the world to the UK. David Cameron is thinking about relaxing the immigration cap for businesses in what he says will "attract the best talent from around the world.". Sounds like a win-win but it's not and the only benefactors will be the already swollen and wealthy big businesses which profit from a set of loopholes and have collectively managed to decimate the UK's IT contracting industry.
First some background about on-shoring. The best bet for the exploitation of UK work permits and visas is to mine India for workers and with IT contracting it comes at a cheap price. For example, when the world and its dog was sweating about the Y2K bug in the late 1990s, there was a real shortage of workers in the UK and the US. The natural choice was looking toward India - where existing IT service companies such as TCS were enjoying a boom. Others such as IBM were also growing their presence in the region.
While some Y2K work was offshored, Indian IT workers were also brought to the UK and US through service companies, employed for clients on-site. The penny dropped. Businesses realised that they could save a lot of money if they kept the ball rolling, and post-2000 more and more Indian IT workers were being brought onshore for training and in fact to replace local staff.
A clear-cut example is Ms. Patricia Fluno, a former employee at Siemens in the United States. You can read her testimony here but in a nut shell, she along with co-workers were sacked and replaced by TCS personnel. A source tells us Amex followed suit in the UK.
Since the initial boom there has been tremendous and rapid growth. TCS, for example, had 6,000 employees 12 years ago and now runs at roughly 174,000 - typically making 25 percent profits on revenue. Wipro is well rooted in the UK and its chairman, Azim Premji, has become a billionaire off the back of on-shoring.
The usual suspects quickly sub-contracted to Indian IT services to provide resources, adding their mark-up, and so have built their Indian businesses to work both offshore and on-shore. Some are IBM, CapGemini, Capita and Xansa, now part of Steria.
It can be substantially cheaper and more flexible for businesses to rely on on-shore resources rather than hiring permanent staff or using contractors. Approximately, the price of off-shoring from an Indian IT service company is cheapest at £120 a day. An onshore Indian IT worker at a client base will cost £300 a day. Compare that to an internal charge rate for a permanent client UK IT worker at £400 a day, covering pension and holiday pay as well as salary. Now compare that to a UK contractor at £500 a day including an agency cut and a UK consultant from an IT service company at £800 a day and the maths are fairly clear.
An Indian IT worker could potentially cost under £50 a day to their employer while being charged to the client at £120 a day. Tempting figures.
It begs some questions, and they mostly can be directed to the UK's intra company transfer visa.
The intra company visa does not require a job to be in an area with recognised work shortfalls and it does not need to be advertised to show that the work could be done by UK staff. The few restrictions in place are simple and at surface value they look reasonable. A foreign employee must have been working at a related organisation for at least a year, though it was at six months before April. There is a points based system in place. They must pass the threshold and be paid at least the going or appropriate rate for the job.
Typically the salary clocks in at £24,000. Adding up visa costs, flights, accommodation and salary should if anything make using an intra company transfer rack up the expenses tally. It doesn't look profitable. Until you realise expenses and tax free allowances can be counted towards the "salary". As a source tells TechEye: "This is complete madness."
IT service companies with the resources can negotiatie with HM Revenue & Customs blanket tax free payments and allowances which cover legitimate business expenses that employees incur having worked at a client site for the first two years. Because these are not salary payments, the HRMC considers them tax free and it means every employee doesn't have the burden of sending in receipts which must then be counted and tallied. The tax free allowance dispensation can be between roughly £1,000 and £1,500 each month.
So if these consultants are on-shore Indian IT workers, they can be sent to client sites. They can be paid a minimum wage salary and grab a tax free allowance of up to £18,000. As a friend of TechEye puts it: "The UK Borders Agency rules are passed, their Indian IT workers are happy, and they can significantly undercut UK workers, void UK income tax and national insurance, both employer and employee."
Indian IT workers on an intra company transfer visa pay very little tax and national insurance. By comparison a UK worker would pay a lot - the system is cutting its nose off to spite its face. Employers using temporary foreign workers gain a strong competitive advantage over local workers. This was noted by the Migration Advisor Committee in a report last August. It stressed the loophole leaves the system, and the UK, wide open to abuse.
The UK Border Agency recognised that allowances could be used to undercut UK workers, but in its statement at the end of March 2010 it decided not to take any action. See page 8, paragraphs 41 onwards, here.
It's also worth looking at the UKBA's appropriate rates policy. They are specified in the codes of practice, here, which states that migrants but be at least paid the national 25th percentile salary in the job. In simple terms that means 75 percent of UK workers doing the same job would be paid better, and for the majority of migrants, who work in the South East, you can imagine up to 90 percent f workers in the region would be paid at a higher rate.
The going or appropriate rate can be 20 to 40 percent less than what the average UK workers doing the same job, in the same region, would be paid.
Further savings can be found within HRMC National Insurance rules. Under "Foreign employer sending employee to UK" on the HRMC website, it's noted that NI contributions "are not payable for the first 52 weeks starting from the first Sunday after the employee arrives in the UK."
A source who wished to remain anonymous tells TechEye that, with all of the legal loopholes considered, it's not enough for some outfits who seek to undercut UK workers further - outside of the law. "I have seen evidence from TCS and Mastek workers that the companies take it one step further and lie on the work permit applications. It appears this involves stating a gross salary that would have been paid had the tax free allowance not been in place. Another way of looking at it is that the companies effectively steal the tax rebate from their Indian workers. They state they are paying £36,000 but actually pay £27,000, which is the net equivalent assuming all taxes been paid, but which is a real gross of £29,000 because only £2,000 taxes were paid."
TechEye has obtained a complaint relating to a major Indian IT services company with an established UK on-shoring business and its tax breaks. It reveals that Indian on-shorers had been asked in early 2008 to eat out for every meal. breakfast, lunch and dinner. They were told to collect all food and rent receipts, travel bills, and utility and water bills and hand them over to the company. Food bills would be reimbursed. When asked why, employees were simply told: "the HRMC wants them." And there's no one employees can complain to. The employer is completely in charge of their time in the UK - rock the boat and they'll be flown back.
It echoes investigative journalist Donal MacIntyre's scoop last year on his Radio 5 show which detailed the payment abuses on-shore workers endure. And word is WiPro is still fiddling the books as this post suggests and its comments back up . There's more here and a similar story from Australia here.
The whole scandal, and it is a scandal, suggests that the UK loses valuable money in a time when it's needed most, contractors are jobless while the Coalition harps on about jobs and the Indian workers brought over are exploited, abused and suffer poor pay to line the pockets of their billionaire bosses.
So then, Cameron relaxing the immigration cap - yay or nay? Another contractor told us, in words we have slightly toned down: "What a useless, tactless, short sighted bunch this lot really are. Who runs this country? Business or the electorate? It's about big businesses running the country and looking after their shareholders."
And this is just the tip of the iceberg.