If you have temporary, interim or contract workers in your organisation then you will, or should, be well aware of the IR35 changes due to hit the private sector on April 6th 2020.
Not sure what we mean by IR35? Read up on 'What does IR35 mean to me' first.
There are over 1.5 million people who work on a ‘temporary’ basis in the UK every day. They could be the Interim CEO of Nestle, an engineer working on an oil rig in the North Sea, a Talent Director in a media business, a Finance Director covering a maternity leave, a Project manager in a digital transformation project, a locum Doctor, a Front of House Manager is hospitality or a packer in an industrial unit.
The requirement for temporary workers is on-going to cover:
The time taken to fill a permanent role
New business or growth
Need for specific skills
Long-term sick leave
For the purpose of this point of view, we will call these workers ‘contractors’ and they are a key element of the economy and vital a supply of on-demand talent enabling organisations to operate flexibly.
There is no need to read on if:
You never use contractors
Your contractors are PAYE
So if this supply of talent is so important to the economy, why change it? The Government understandably wants to ensure that those working on a contractor basis are indeed working as genuine freelancers. Ie they are not doing the work of a permanent employee with the employer avoiding employers national insurance, auto-enrolment pension contributions and, if big enough, the apprenticeship levy. So for most companies, there will be an increase of 17.3% on the wage bill for each contractor if the worker falls into IR35. The contractor will also take a big hit of at least 20-30% depending on their pay rate as they pay NI and full tax.
Yet the work still needs to get done, skills are still needed, and the cover is still required.
So the options are simple:
Make roles permanent
Move people to fixed-term contracts
Make contractors roles PAYE
Adapt to stay out of IR35
Some employers are already stating that all contractors must fall within IR35, which are basically options 1-3 above. If that is the chosen path then consideration needs to be given to the contractor's response. It’s is likely that most will seek to move to employers who favour a more flexible approach. The other option is to accept a significant increase in cost, not just employers NI but also the contractors day rate to compensate for the 20-30% loss. Naturally options 1-3 above will involve significant costs.
For small companies – no need to worry, the regulations don’t affect you. In fact, you may be able to gain talented contractors fleeing from bigger organisations.
Therefore the advantage will be with those employers who look to apply the legislation and amend the way they work.
At Aspire we supply contractors, all currently via Umbrella companies as independent contractors. They are predominantly representatives of their private services companies and work as Media Executives, Digital Marketers, Creative Designers, Content Professionals, Data &Analytics executives, Market Researchers, and Conference and Events professionals.
Adapt to Stay Out of IR35
If you are an organisation with a turnover of less than £10.2m, a balance sheet of less than £5.1m and less than 50 employees, you are deemed a small business and not subject to the changes.
All other organisations have to:
Determine the status of the role to be filled, on a role by role basis.
If using an agency (Employment Business) then communicate that status to us and the reasons for it.
The contractor must include a right of substitution clause that the employer agrees to. The Contractor pays the substitute and the end-user can’t select or pre-assess substitute. Naturally, every contract will have a termination clause, so in the event of a contractor giving notice or being unable to continue, the contract can be terminated and then start at point 1 again.
The contractor can’t be seen as part and parcel of the employer. Ie they must remain independent, they don’t join social functions, don’t have set hours, don’t receive the benefits that permanent employees receive.
The contractor should have their own website and marketing materials advertising their services.
A key element is the determination of the role and deciding that it is not permanent. Assuming 1 above has been applied and a contractor is required then to remain outside of IR35 you simply issue a Statement of Works (SoW). Just like you would contract an office interiors company to undertake an office refurbishment you will state the clear deliverables, the task to be carried out, any systems, software, or unique organisational assets required to undertake the project and anything else needed to complete the work such as timescales. Contractors also choose their place of work. Naturally, if they need access to systems and or people who affect the ability to deliver the SoW they may well need to be on-site or with permanent employees.
Just like the office refurbishment company the Contractor chooses their own hours, the SoW is about the delivery of the project so if you have agreed on a timescale such 5 months, then that’s fine.
If nearing the end of the contract you have another project to the contractor then simply follow steps 1-7 again
During the project, the contractor can’t be under the command and control of the project manager, can’t be told what hours to work and what to do. Naturally, the Project Manager can refer to the SoW to evaluate progress and can terminate the contract if need be.
If the contractor uses an Umbrella company for accountancy services then they still remain outside IR35 if the points above have been adhered to.
Finally, any payments to contractors after April 6th fall into the new legislation so need to terminate all contracts running over this period and issue new ones to be compliant
The requirement to access flexible talent is clear and will still be perfectly possible once organisations turn the work to be done into projects have agreed on simple internal processes to ensure they are IR35 compliant.
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