How will IR35 impact interim recruiters?
Lukas Vanterpool, director and co-founder of The Sterling Choice
April 2020 will see the public sector IR35 reforms go into full effect.
The government has stated that the reforms are designed to address tax or NI contributions avoided through non-compliance with off-payroll working rules, which are set to reach sums of up to £1.3 billion a year by 2023/24.
Many interim workers and agencies have prospered from the maelstrom of economic uncertainty and ever-changing organisational agendas Britain has been facing for many years. Change is the ideal environment for an interim to thrive in, but it has also allowed a certain amount of tax ambiguity. However, any boom around instability is destined to be unsustainable, no economy can thrive under such circumstances, even if it does allow a few to profit in the short term. And so as if on cue, the approaching IR35 reforms are casting a rather large shadow of confusion over interim professionals and the recruitment process: What will be the impact of this legislation on business, clients and candidates? Will it have the disastrous effect that many doomsayers are predicting?
Cautious or just critical?
Unsurprisingly, those who have profited the most by taking advantage of the system are also the most vocal and dedicated critics of IR35 being applied to the private sector. As those who stand to lose the most often do, these critics have been proactive in fuelling the culture of confusion surrounding the tax amendments, stoking fear and doubt in regards to what the reforms mean for individuals moving forward.
The governments IR35 toolkit calculator has come under considerable fire from several quarters, and it is a flawed system in need of an overhaul, but that doesn’t detract from the positive impacts that occur when the changes come into effect in April next year.
The additional year should be viewed as a welcome period of notice in which those who operate in the private sector can consider their options, confer with legal experts regarding working practices and contracts, and generally figure out the best way in which to proceed.
The impacts of IR35 reform are being felt already. Some companies have ceased using off-payroll workers altogether, instead favouring fixed-term contractors and management consultancies to deliver change. Many career interims have abandoned temporary work, leading the supply of individuals to stall, so certain statutory roles can no longer be resourced, and demand has overtaken supply.
The instability of the external environment has already had an impact on the recruitment industry, with skills, competencies and leadership suffering. Focusing on these internal changes will prove pivotal in the positive development of the industry. A perpetually shifting landscape means innovation and future-focus has never been more vital to the industry’s growth. Building internal project teams to focus on development strategies would be a great way to future-proof an organisation. In order to do this effectively, they need to focus on hiring permanent employees, offering training and promotions from within. By diversifying and innovating, agencies can offer a better, more considered service to their clients.
Many UK businesses have ignored the time allotted to them so far in order to appropriately consider the challenges ahead and are ill-prepared for the changes to the labour market. This is one of the many factors that have contributed to the increased demand for recruitment agencies. But with agencies preparing for IR35 and the challenges it brings, there are a wealth of opportunities for the industry to actively help clients to reform current hiring procedures.
Honesty is the best policy
The reforms will most certainly have a positive influence regarding business practices, ensuring disguised employees can no longer cheat the system and creating a level playing field, enabling a climate of honesty to spring forth.
It will also force agencies to diversify, with some eyeing up the benefits of expanding their portfolio to incorporate full-time hires, further promoting the advantages of permanent work for both the workers and the companies.
Following the first wave of reforms that applied to interims in the public sector, some agencies scaled back operations within the public sector and shifted focus towards other markets that were yet to be affected by the legislative changes. This has proven to be a short-sighted strategy, as they will need to consider new strategies altogether by April next year.
One of the main priorities for agencies should now be the provision of strategic advice to clients, with great opportunities now open to recruiters to innovate and forge new relationships based on genuine value and superior customer service.
It is a fantastic opportunity to ensure that the UK job market is all-inclusive moving forward. Interim agencies can help to facilitate this transition to a more stable jobs market by diversifying and expanding into both full and part-time recruitment, to do this they must be honest about the benefits of full-time work.
Picture courtesy of Pixabay