What your new kitchen and IR35 have in common
Don't let the IR35 delay stop you from preparing for its arrival next year – take this extra time to better understand the legislation and plan accordingly. A good starting point is to think about how you would go about getting your kitchen fitted...
For many businesses, the recent announcement that IR35 will be delayed until 2021 likely comes as a welcome reprieve during these challenging times. However, preparing for the regulation should still be a concern for businesses.
The framework itself, which aims to stop employees registering themselves as freelance contractors in order to pay fewer taxes, is not a new concept. But the change in legal responsibility for determining the IR35 status of contractors has been perceived as a major threat to big businesses in the UK.
So much so that an ever-increasing number of businesses have announced, or have been exposed as having ‘all in policies’, whereby companies enforce a blanket assessment that all contingent roles are hired on a PAYE basis and avoid engagements in a Ltd capacity within this category.
Rather than putting it at the bottom of the priorities list, businesses should see the next 12 months as a grace period, allowing them some extra time to better understand and plan for the legislation to ensure compliance come April 2021.
Businesses need to be asking themselves whether they are contracting workers as if they were sourcing someone to fit them a kitchen.
Think of it like a new kitchen
One of the easiest ways to understand the framework is by thinking of it as if you were going to contract someone to build a new kitchen. You’d likely start by searching the internet to gather some names and request quotes, making your decision based on whatever is most important to you: cost, quality, presentation, etc. There is nothing wrong or illegal in that.
When the kitchen fitter arrives, they bring their own tools, but you might need to give them a key if they’re going to let themselves in. You’d show them where the kitchen is, what kind of appliances you want and where you’d like them arranged, what overall look and colour scheme you’re imagining. You would agree to the price up front, as well as how long it should take to get the job done.
If they finish early or late, you pay the same. If the fitter you spoke to isn’t the one who arrives, it’s not a problem – you just need someone who knows how to fit a good kitchen. If they arrive at lunchtime and leave by late afternoon, you might roll your eyes, but you don’t pay them for half a kitchen — you wait until the job is done.
Once it’s built, they report back to tell you the job is done. You would take a look, ideally say you’re happy and then pay up. If it’s a terrible kitchen with all the wrong cabinets, appliances and colours, you’d pay nothing and expect them to re-do the work before you pay.
Linking your kitchen to IR35
What exactly is happening in businesses across the UK that made IR35 necessary in the first place? Coming back to the kitchen analogy, the fitter might show up but then expect the owner who had hired them to provide the tools, paint and appliances. Or, the owner might provide detailed, step-by-step instructions on how it should be built rather than simply explaining what the kitchen should look like when it’s done.
The owner might even want to arrange one-on-one meetings with the worker throughout the project to check on their progress and set new goals, such as working on the bathroom too. What’s more, the worker might also be expected to manage the gardener or cleaner! And lastly, if it’s not done at the end of the day, the worker will still be paid, and then also paid every day until the job is done.
The message here is that businesses need to be asking themselves whether they are contracting workers as if they were sourcing someone to fit them a kitchen. If organisations start out by asking that question, it’s more likely they will be on the right track and contracting work in compliance with IR35.
Early identification allows the time to measure and mitigate the risk of misclassification before it’s too late.
Continuing on the right path
Our research with Oxford Economics found that 42 percent of total workforce spend is going to the external workforce, so it is absolutely vital that organisations begin with this line of questioning when workforce planning. Beyond this, there are other factors to be considered too.
For example, organisations need to assess all current contractors. By doing this, businesses will have better visibility into whether contractors are treated more like longer-term employees or shorter-term service providers – and it’s probable that most will be seen as the former. Early identification allows the time to measure and mitigate the risk of misclassification before it’s too late.
Organisations also need to look into their supply chain, as they are not alone in facing these same challenges. Therefore, extended exposure needs to be evaluated to identify any weak links, and again, proactively managed.
Lastly, businesses need to take an integrated approach across the business. IR35 is only one of many compliance checks that needs to form part of a company’s onboarding process. Having a connected landscape and automation between core applications allows customers to have a single view and manage control around how workers and service providers are engaged.
Legislation like Right to Work, DBS checks, Health and Safety, etc., should be managed appropriately with a single, comprehensive view into all. By integrating and automating these HR processes, organisations will be able to keep operations running with the right talent in the right roles getting work done.
Taking these factors into consideration, businesses can work out if they are treating contractors like employees. Now is the time to be intentional about either hiring them full-time or truly treating them like contingent workforce members. After all, if you really wanted to bring in a contractor to fit your kitchen, then do it and let them do that job phenomenally. Happy cooking!
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Stephan manages a team of enterprise account executives for the UK & I market at SAP Fieldglass & Ariba. He is responsible for developing sales strategies and subsequent execution; establishing partnerships with MSP’s, System Integrators, Digital Partners and SAP industry teams and other lines of businesses. Prior roles include AODocs...