How to turn IR35 reform into an opportunity

Seb Maley explains why businesses that continue to engage independent contractors will be in a stronger position than those that play it safe

Is it time businesses started looking at reforms to the off-payroll rules differently? As an opportunity to attract the very best contractor talent? As an incentive to operate a lean, agile, cost-effective contractor workforce in a compliant manner? As a way to gain a competitive advantage? In my opinion, yes. 

That’s not to say I agree with the introduction of IR35 reform in the private sector on 6 April 2021. Far from it, in fact. It’s a short-sighted tax grab that, if mismanaged, poses a significant risk to HR teams, recruitment agencies and, of course, contractors themselves. However, in just a few months, medium and large businesses will become responsible for determining the IR35 status of contactors, like it or not. And as part of this blinkered move from the government, the IR35 risk – which for now sits with the contractor – will be shifted to the fee-payer in the supply chain. 

It therefore goes without saying that companies need to be in a position to compliantly manage the changes before they land. This means businesses must make decisions about how they plan to determine IR35 status sooner rather than later. 

The complicated nature of the legislation, along with the prospect of orchestrating this project, has meant that some firms look as though they will stop engaging contractors entirely or blanket place them all inside IR35. These are both needless approaches, and the latter is non-compliant. My advice is to avoid panicked, risk-averse policy decisions like these. Instead, businesses should implement a clear, measured strategy for the changes. Speaking from experience, organisations that approach the reform this way – or even see this as an opportunity – will gain advantage over those that don’t.

I’m well aware that the words ‘opportunity’ and ‘IR35’ go together like chalk and cheese, so let me explain what I mean by this:

Access the best contractor talent

Firms that ban contractors – whether by forcing them to work via umbrella companies or as employees – will lose out. This, at least, is plain to see. Something that’s often overlooked, however, is that those planning to continue engaging genuine contractors outside IR35 beyond April 2021 will have the pick of the bunch. 

All the research points towards the fact that contractors want to continue working outside IR35, where, incidentally, the vast majority belong, in our view – I say this with confidence given Qdos assesses more than 2,000 contractors every month and have carried out more than 150,000 IR35 status reviews since the legislation was introduced in 2000.

My point is a simple one to grasp, I hope. The businesses that assess IR35 fairly will be able to attract independent workers. The businesses that don’t, won’t. 

Retain flexibility and agility 

Contractors offer unrivalled flexibility, which has perhaps become even more important given the economic challenges presented by the pandemic. Through carrying out fair IR35 status determinations, businesses will be able to maintain this agility and continue to engage flexible workers as and when they need to. 

Operate a cost-efficient workforce

There’s a misconception that contractors cost more to engage than employees. However, the day-rates charged by contractors don’t always paint an accurate picture. In reality, businesses that insist contractors work on the payroll – whether as employees, inside IR35 or via umbrellas – will pay more overall than they would when compliantly engaging a contractor on around the same money outside IR35. From employers’ NI to additional payroll fees and or various umbrella charges, the total expense of hiring an employee or an individual on PAYE tends to be greater than the one incurred when working with a contractor outside of IR35. Even if the difference is minimal, when scaled across a business, many of whom engage thousands of contractors, this adds up. As a result, keeping a contractor workforce in play will more than likely contribute to significant savings. 

Claw back time

Of course, there are plenty more opportunities. Time, for example – the time saved when engaging a contractor as opposed to onboarding an employee. Or even the autonomy that a contractor working outside IR35 enjoys, which requires less time spent managing this individual. 

Ultimately, as we close in on the rollout of these changes, my advice to businesses is to look beyond the challenges presented by the reform. I understand that IR35 is complex and I know that becoming responsible for deciding the status of contractors is not what companies want. However, I cannot stress enough that IR35 reform can in fact be managed; achieve this and a business will be in a stronger position to benefit where others don’t. 

Seb Maley is CEO of Qdos Contractor