The HR world has been anticipating what the IR35 draft legislation will look like since the Chancellor announced that the government would be reforming the off-payroll working rules in 2018. Now that we have a clearer understanding of what’s to come when the regulations come into force in April 2020, we can begin preparing our workforces and putting in place the necessary processes to comply with the changes. Here’s everything you need to know about what’s to come.

Are HR teams ready?

A recent poll conducted by APSCo among its membership of recruitment firms revealed that only 12% of respondents believe the majority of their clients have started preparing for the off-payroll changes in the private sector, with under half (40%) saying most of their clients are unaware of upcoming changes. HR teams were left in the dark about what to expect up until recently, but now that the draft legislation has been announced, employers must get ready.

What did the draft legislation reveal?

We now know for definite that the responsibility for operating the off-payroll working rules will shift from the contractor to the end-client organisation, recruitment business or other third party engaging the contractor, which is more commonly referred to as the “fee payer”. This means that the penalties that come with incorrect status determinations and the failure to provide “status determination statements” could fall on employer’s shoulders. This is of course an unfortunate situation, particularly as there hasn’t been much clarity on what the statement should include. HMRC’s draft legislation has also confirmed that small businesses will be exempt from the legislation in the private sector To qualify as a ‘small business’ companies must meet two of the following requirements: An annual turnover no more than 10.2 million, a balance sheet total no more than 5.1 million or a headcount of no more than 50. 

HR must be cautious

The draft legislation states that in order to comply, the employer must provide its reasons for the final status determination to the party contracting with it in the supply chain and the worker. However, there hasn’t been much clarity on how much detail should go into this reasoning. Another area where HR professionals must be cautious in is taking “reasonable care” when making determinations. What this exactly means hasn’t been outlined, however, to be safe, we advise that you document your steps and communicate with all parties involved.

Transfer of liability

There are five situations where the liability will transfer from the fee payer to another person in the chain.  These are: Where the client doesn’t take reasonable care; where any entity doesn’t pass down determination; where the client doesn’t comply with the status disagreement process; where the client doesn’t notify a change in its size/status; and where a party further down the chain is unable to pay its liability to HMRC.

What did we learn from the public sector roll-out?

In 2017, HMRC introduced the off-payroll working rules in the public sector. This legislation imposed an obligation on the public sector to inform the party it contracts with of the status of the contractor, and whether or not they will be regarded as an employee. Due to many agency workers falling “inside” IR35 and, consequently, taking home less pay, our members reported an upward pressure on contractor day rates.

What actions should you take?

We strongly urge HR teams to take action now and begin working with their recruitment partners to prepare for the updated regulations. This should involve appointing a steering group, which will take into consideration contractor fee changes, review IT systems and internal processes and ensure that all relevant parts of your business are involved and informed on making determinations and on all final decisions. It’s vital to have a designated team that will have ownership of the supply chain review to ensure that compliance is met.

While the next few months will be an arduous period of change, if employers begin taking action now, the right processes can be put in place to make things as smooth as possible in April 2020.