It’s not often I write about the same subject twice in a row but I’m going to make an exception.
In my previous column for Property Industry Eye I speculated on the Purplebricks money back guarantee and posed whether it’s worth the website code that it’s written in. From the reaction the article received it seems that many agree with me and that it would probably be easier to persuade Chris Wood to lend James Munro at NTSEAT a tenner than to get money back from the accountants at Solihull.
Now, hot on the heels of this story is a rumour that comes from a well-placed Purplebricks insider and that, if true, will not only make big headlines in the property and financial press but might also ultimately put the lights out at Cranmore Place for good.
The Purplebricks business model is predicated around a number of aspects that protect costs, given the ultra-slim net margins with which they operate of only 7%. One such aspect is their reliance on technology and related automation. Another is their distant relationship with anything that resembles chain-checking or sales progression. Another is that the majority of their workforce are self-employed – 60% in fact (Source: Purplebricks Annual Report 2021).
This 60% represents the company’s Local Property Experts or ‘LPEs’. There are around 600 of them engaged at any one time and their cost to the business is significant at over £33m in 2020/21 – equivalent to more than 36% of total revenue. But, this cost is mitigated because this aspect of their 1000 strong workforce is self-employed.
In other words, it’s much cheaper to use self-employed salespeople compared to employed salespeople.
So, and here comes the punch… what if those 600+ self-employed individuals were to switch to being employed? Quite a U-turn, eh?
Quite apart from the additional cost to Purplebricks’ business and a huge question mark over the implications upon their future financial viability, what of the impact on the LPEs themselves?
Well, the grapevine tells me that this is exactly what’s about to be announced. It’s rumoured that Purplebricks is about to dictate that all LPEs will become employed.
First, the company maths. You’ll remember that I took a stab at this last time in pre-supposing what fate Purplebricks would suffer if it had to refund all of the money to customers for whom they’d failed to sell a house. The benefit of talking about publicly listed businesses is that their numbers are there for all to see – handy when you’re proving a fiscal point.
Again, £33.2m was the amount paid by PurplbBricks to their 600+ self-employed LPEs in the last financial year. Being monies paid to outside contractors, this amount does not attract employer National Insurance contributions nor auto-enrolment pension costs.
Which means that when LPEs enter formal employment, the National Insurance levy at 13% of employee earnings will add £4.3m to Purplebricks’ annual costs.
For pension contributions add another 3% as the employer’s minimum – call it £1m. Total – a not insignificant £5.3m and, by coincidence, roughly the amount of profit that PB made last year.
But it doesn’t stop there. When employing staff an employer is responsible for sick pay, holiday pay, maternity/paternity pay and redundancy payments, overheads that are avoided when using self employed agents.
For example, average annual sick pay per employee in the UK is £460. That extrapolates to another £276,000 in PB’s case here.
Plus basic pay? Wow, that would put a massive dent in cash flow too.
Also, I wonder if Botha and Darvey have stopped to consider the spectre of employment tribunals? These days, judges can award up to £89,000 for unfair dismissal, more for cases of discrimination, and so it’s a line in the P&L that needs not be ignored.
One wonders whether there will be moves to mitigate these costs by reducing LPEs’ commission rates? It wouldn’t surprise me. I’d say they almost have to.
This is all adding up fast and seems to take Purplebricks back under the waterline if they are intending to (or are being forced to) make this move.
The consequences for LPEs? The self-employed avoid National Insurance at source. They also pay Corporation Tax at just 19% (for now) on profits, not standard income tax at the higher rate on monies not drawn. Being self-employed also means being able to claim for expenses against tax such as phone, fuel, car, stationery and even part of their bills at home if they work from there. These perks will all disappear overnight if and when their employment status is switched to suit Purplebricks’ management.
The consequence of this decision seems pretty dire to me. For both sides.
Interestingly, it’s also slowly morphing Purplebricks into the one thing that they were supposed to be the opposite of, that entity that they’ve passionately campaigned against the most – a traditional estate agent.
Is this the end? Or perhaps it’s actually a new beginning. Who knows, maybe one day I’ll be writing about their plans for a ‘success only’ fee and a fully-fledged sales-progression capability?
Watch this space…
Russell Quirk is co-founder of property PR specialist ProperPR and regular commentator on the industry and the housing market for broadcast media. The opinions expressed are his own.
[Purplebricks was offered the opportunity to give a statement in relation to this article. They declined.]