Are we going to see a ‘contractor merry go round’?

Pubished 21st January 2020

With the 6th April drawing ever closer, the questions that most agencies and users of non-permanent labour are asking is how to ensure compliance with the impending legislative reform. Just to clarify, IR35 isn’t changing, but the responsibility for carrying out the assessment that determines whether an assignment is inside or outside of IR35 is shifting to the end-user.

Over the last few months, we have seen a proportion of organisations apply blanket rules on all non-permanent labour, which, considering we have record numbers of vacancies here in the UK, one of the lowest unemployment rates in Europe and the second highest employment rate in the world, appears ill-thought through and somewhat short-sighted. How on earth are these organisations going to compete for in-demand skills and talent when contractors can secure roles deemed to be outside of IR35 elsewhere?

To compound this, we’re seeing global trends changing the shape of the labour market. The permanent workforce is shrinking as organisations become increasingly reliant on contingent labour (temporary workers, contractors, freelancers, gig workers etc.) The change is so significant that Deloitte now estimates that 40% of the workforce in the USA will soon have more than 1 job.

We recently ran a survey amongst some of our IT contractors and the results make interesting reading. The survey asked these contractors for their thoughts on IR35, what they believe their current status is likely to be assessed as, and their expectation as a result. A total of 170 contractors took part in the survey:

  • 62% of contractors felt they had a very good understanding of the IR35 changes and the potential impact of the reform.
  • 72% of contractors said they would try to negotiate an increased pay rate to cover deductions if they were assessed as ‘inside’ IR35.
  • Only 12% of contractors confirmed they would accept paying deductions if they were deemed to be ‘inside’ IR35.
  • Less than a quarter of surveyed contractors said they would accept an equivalent permanent position offered by their ‘employer’ if they were assessed to be ‘inside’ IR35.
  • Only 20% of contractors expected their current assignment to be assessed as ‘inside’ IR35.
  • Nearly two-thirds of contractors said they would leave their current assignment if they are assessed to be ’inside’ IR35.

The survey results demonstrate that the vast majority of contractors want to continue contracting; and will move to another organisation rather than accept an equivalent permanent position. By their admission, the HMRC estimates that 66% of private sector contractors will be deemed to be outside of IR35. Added to that, over the last few years, the HMRC has won less than 15% of cases that have gone to court, so why are organisations panicking. It’s nuts!

If organisations don’t consider the wider implications of the reforms, I believe that there will be a contractor merry go round, as contractors seek out those roles deemed to be outside of IR35. Those roles will be available in organisations that have planned for the potential implications of these reforms, who have sought proper legal advice and implemented both an assured process alongside internal policies that are fully compliant with the updated legislation, facilitating best practice engagement of the non-permanent workforce. Those that don’t do this should turn the lights off and lock the door.