IR35: Protecting Your Access to Skills Post-April 2020
One of the biggest threats to organisations is the drain of top talent if high-calibre contractors seek engagements elsewhere due to company policies preventing hiring managers engaging PSCs. The new legislation may also make it harder in future to hire contingent workers with up-to-the minute skills, which can benefit your business in a real-time, agile way. So how can businesses protect their access to the best talent in the market and continue operating at the highest level with the best skills?
It’s decision time for contractors.
It would be an understatement to say Limited Company contractors/PSCs are dismayed by IR35. The complexities of determinations, and the threat to take home pay, are causing confusion and annoyance in equal measure. They know they have some important decisions to make:
- Should I quit contracting and go full time?
- Should I accept inside-IR35 contracts and take home less?
- Should I ask for a higher rate to compensate me for accepting inside-IR35 contracts?
- Should I only seek contracts that are outside IR35?
The reality is that PSCs with in-demand skillsets or with particular niche expertise will likely go with choice 3 and/or 4. They know their skills are at a premium, and they can continue to earn at the same levels. The people who go full time or accept contracts inside IR35 are likely to perform roles that rely more heavily on supervision, direction and control from their end clients.
Some high-profile, large organisations have already announced a blanket ban on new PSC engagements through fear of risk and penalties for non-compliance. They may have cut themselves off from the top talent pool in certain domains – unless they are prepared to pay over the odds.
What can organisations do?
Increase permanent headcount
Many organisations have already started ramping up permanent hiring. Doing so will significantly increase salary and wider staffing costs. Training and reskilling budgets will climb considerably. And, it will make the workforce rigid and organisations far less agile. They will be ill-equipped to react and compete in fast-moving markets – which is exactly what the hiring of skilled contractors helps to avoid. On top of that, there is the problem of quality, with contractors honing their skills by moving around and gaining insights on organisational best practice and applying this to their work. Few of the best contractors will go full time. It will be hard to hire permanent talent without offering eye-watering salaries.
‘Persuade’ contractors to work inside IR35
This can be a tough call. There are contractors who will value stability, the reassurance of guaranteed income and the reduced risk of HMRC investigation. Some may accept working inside IR35, perhaps with a modest rate increase to soften the loss to income. You might get lucky and retain some good talent. But many contractors are unlikely to accept these terms – and you may struggle to hire talent in the future.
Bite the bullet. Pay higher rates
Ouch. This one is going to hurt. If you can guarantee contractors no loss of income from working inside IR35, they may come on board. But it’s going to cost you, hurt the bottom line and may result in wider pay rate inflation.
Find a new way to engage contractors outside IR35
This is where things get interesting. The big problem for organisations with IR35 is their traditional way of engaging and deploying contingent workers. PSCs usually work much in the style of a regular employee, often on client premises and under direct supervision. The alternative is to rethink the way you engage contractors. Stop ‘hiring’ contractors into jobs. Instead focus on the outputs you need delivering - and turn the work required into discrete ‘packages’ that can be delivered as projects or statements of work.
You can then engage contractors to deliver these project outputs – outside the direction and control of line managers. You pay agreed fees for delivering certain milestones, rather than a ‘salary’ for working a number of hours/days. You impose penalties if they fail to meet deadlines or quality targets.
This might sound a bit scary, especially to line managers. It may not be suited to some roles/projects. But, with the rise of the gig economy, some people believe this kind of model will be the future of work in industries built around tech, data and digital.
It’s a model that already works in many sectors. To create a new website, a digital agency might hire freelance project managers, UI/UX consultants, brand consultants, writers, designers, web developers, photographers, filmmakers, social media experts and more. Only the project managers are there through the whole lifecycle. No one works under direct supervision. Everyone else has a discrete package of work to deliver – they can all be paid a set fee, rather than for hours worked.
Pay up or change your approach
No-one can say for sure what will happen in the run up to April and after. However, one thing is certain - it will become harder to maintain access to the best talent, especially in the overlapping worlds of technology and financial services. To remain agile and keep that access to talent, you really only have two choices: pay more, or engage contractors differently.
Yesterday we launched our new IR35 Compliance Managed Service, which mitigates the consequences because of, and due to, the upcoming changes as well as equiping you to take full advantage of the opportunities it presents.
Our service solution is a smarter approach to minimising liabilities, disruption and the risk of increased staffing costs, while ensuring you can continue to access high calibre contractor talent that gives your organisation the agility to compete.
For more information on this, or if you would like advice on any aspect of IR35, please don’t hesitate to contact us by emailing IR35@interimpartners.com and one of our expert consultants will get back to you to discuss your needs.