IT recruitment specialists have seized on the case as evidence that government plans to effectively outlaw the use of time sheets as a way of verifying how much work contractors have completed will open the floodgates to further fraud.
They warn that the proposals, part of the draft Conduct of Employment Agencies and Employment Business Regulations, will inevitably mean higher costs for employers that take on freelance staff.
The proposals, part of a string of reforms from the Department of Trade & Industry, are designed to stop unscrupulous agencies using missing or delayed time sheets as an excuse for refusing to pay contractors for work they have done.
Computer Weekly revealed last week how Buckinghamshire-based contractor Glenn Todd forged his time sheets and then attempted to cover his tracks by faking his death from cancer in the US.
The ruse was discovered when the supposedly dead contractor posted a message on the Friends Reunited Web site months later, asking former friends and workmates to get together for a reunion.
Kevin Barrow, employment lawyer at City law firm Tarlo Lyons, said the case has exacerbated concerns over the draft regulations, which require recruitment agencies to pay contractors, whether they have valid time sheets or not.
"Agencies are worried they have to pay these guys when there is no evidence they have actually worked. They could require contractors to send in their own time sheets, but contractors could send in something which is a total fraud. It may be a month or two before the agency can find out from the end-user that the contractor did not do the work," he said.
The proposed regulations, which could come into force by May next year, will have knock-on effects for IT departments, particularly those with long-established systems in place to pay contractors on the basis of valid time sheets.
Recruitment agencies will attempt to compensate for the extra risks they are taking by charging their customers more, said Barrow.
Warwick Bergin, director of Triangle Partnership, which is attempting to recoup the outstanding £10,000 from Todd, said the proposed regulations could only encourage fraud.
"The only mechanism to prove working is to assign a time sheet. Without that commitment between the contractor and employer, there is no way to prevent theft," he said.
Richard Herring, operations director at recruitment firm Reed Executive, said, "We are very concerned that this method of recording the hours that someone has worked is under threat. There is currently a method in place that lets us get the agreement of the client about what has happened. Whether it is a time sheet or another method, we would be very concerned if we were not allowed to do that."
Read more on IT jobs and recruitment
IR35 reforms: Government gifted roadmap to umbrella regulation by ex-senior policy adviser
Loan Charge Group MPs demand IR35 shake-up to stop contractors becoming ‘zero-rights employees’
IR35 reforms: MPs call on government to clean up UK’s ‘wild west’ contracting labour supply chain
IR35 reforms: Slow government progress on umbrella regulation exposes IT contractors to tax risks