How to ensure contractors feel supported through IR35
Matt Fryer, head of legal services at Brookson Group
With the roll-out of IR35 in the private sector confirmed from 6th April, it’s critical that recruiters fully understand the changes to the rules and how they will impact their contractor workforce.
Until very recently, a lack of government guidance and continued uncertainty over the changes coming into force has made it incredibly difficult for recruiters to confidently provide contractors and clients with the right advice. It now looks certain, however, that the legislation change will go ahead as planned.
With the shadow of HMRC hovering over them, contractors are understandably nervous, so it’s important to make sure that they feel supported. In fact, our research indicates that recruiters who manage IR35 successfully will actually gain a competitive advantage, with 80% of the 500+ contractors we surveyed stating that they would be more likely to work with a company that has proper IR35 policies and procedures in place.
Become a trusted partner
The biggest concern for many genuinely self-employed contractors is that they will be wrongly caught inside IR35, not only taking a pay cut but then also feeling at risk of further investigation by HMRC. When asked what action they would most likely take if they were found to be inside of IR35, 50% of contractors said they would ask for a pay increase and benefits, while 21% said they would challenge the decision. It’s important to remember, however, that assessing employment status isn’t a skill that recruitment agencies will possess. Instead, they should consider partnering with a reputable specialist law firm that can work with them to ensure their end clients take reasonable care and their contractors are treated fairly.
There is a huge opportunity here for recruiters who position themselves as contractors’ go-to resource on IR35 compliance, helping them to understand their employment status assessments, secure specialist support when necessary and keep open communication channels with hirers. In doing so, recruiters will not only build trust with their existing contractor base but also set themselves apart from competing agencies who are not taking a proactive approach.
IR35 is a complex area of employment law. Even within recruitment there is still much confusion about how it works and what the changes will mean. In-house training is hugely important and will need to take place across the agency. This will not just impact one person in the office – everyone will face questions from contractors and clients alike.
Contractors will value clarity and recruiters’ ability to engage in open and honest conversations on how it will impact them. If the team can’t provide the right consultancy, contractors are likely to move to an agency that they feel can offer them the right level of guidance and support.
Protect against non-compliance
Recruiters also have a role to play in helping contractors navigate the currently unregulated umbrella market. Intermediaries posing as compliant umbrellas companies are aggressively targeting contractors caught inside IR35, offering a ‘too good to be true’ percentage of take-home pay, often up to 90%, or an aggressive view on the employment status of disguised employees.
With echoes of the Loan Charge, some of these intermediaries are, in fact, tax avoidance schemes and often operate from outside the UK, while paying contractors through loans or offshore fund. This not only carries risk for the individual, should the find themselves investigated by HMRC, but it could have serious repercussions for the agency. If a non-compliant supplier that has not been paying the correct tax goes bust, the liability and therefore debt will be transferred up the supply chain to the agency or end-client.
To avoid this, recruiters should be carrying out due diligence on their supply chain and any third parties they choose to partner with. This includes asking intermediaries for details on how they are ensuring compliance with the new off-payroll rules and looking for accreditation by a reputable entity such as The Freelancer and Contractor Services Association (FCSA).
Photo courtesy of Shutterstock.com