IR35: Could the off-payroll working reforms cause an upsurge in outsourcing?

The Covid-19 pandemic is significantly impacting businesses and their workforce, and with less than six months until the implementation of the reform to the off-payroll working rules (IR35), now more than ever is time to plan and implement your resourcing strategy.

 

For those less familiar with IR35, businesses, PSC’s, intermediaries, and suppliers of contingent workers have been riding the IR35 roller coaster since the changes were announced in early 2019.

 

HR, Finance, Tax, and Legal departments, who traditionally have had limited involvement with the contingent workforce, have been presented with many fresh considerations. As such, the motto for any business with a contingent workforce is to ‘be prepared’ for IR35.

 

For internal Talent Acquisition and HR teams, the impact aside from the financial costs, is likely to be significant. They will need to consider the commercial negotiations, new administrative requirements, systems, legal updates, and any contractual changes – just to name a few.

 

All of these will need to be implemented and maintained. As such being unprepared and making the wrong decisions, or indeed no decisions, could have serious financial implications for the ‘end user’.

 

Mark Groom, Deloitte stated “If a business gets IR35 wrong, it could face a tax and national insurance (NI) bill in excess of around 50% - 60% of the fees paid to contractors for their services”. 1

 

Contingent outsourcing has historically been used to provide transparency on spend and cost efficiencies. However, with the above considered, it goes without saying that there is an ever-increasing need for agile and solution-based partners.

 

NelsonHall, state “the biggest challenges in procurement continue to be budget constraints, poor process alignment, incomplete technology and, of course, resistance to change. But Covid-19 has created an environment where overcoming these challenges may become somewhat easier…..more emphasis is being placed on building stronger relationships and using suppliers’ expertise as a source of competitive advantage“. 2

 

For many businesses, economy-driven change has been inevitable in light of external challenges. Increasing the need for adaptation and a consideration for automation and digitalisation, across all aspects of operations to retain a competitive edge.

 

As a result, executives are addressing their strategies and are acknowledging that engaging with their suppliers as ‘partners’; such as consultancies and outsourcing providers to name but a few, is paramount and that more value needs to be placed upon building trusted and secured relationships with them. In turn, this will enable end user clients to leverage their partners to a greater extent, creating long-term strategic relationships.

 

By leveraging partnerships with intelligent and innovative Managed Service Providers (MSP), the end-user client will benefit from advanced technology, change communication expertise and intelligent insight. Inevitably this will result in faster decision-making with minimal disruption.

 

 

The sheer complexities, case law, and challenges around IR35 determinations and the difficulties in applying a one size fits all approach to the arrangement with your contingent workforce means that HR departments are having to collaborate more so than ever with internal and external partners to get their determination right to maintain their talent pools.

 

The challenges that the reform brings leads to a gap in accountability. Given the complexities of the implementation, no one individual or department has sought to manage compliance and become ‘owners’ of the reform to IR35 as many have never felt suitably informed to make the final decisions and potentially carry the risk. Inevitably, this leads to uncertainty, poor planning, and a lack of internal communication. Often resulting in contractors exiting and leaving highly critical projects uncompleted.

Jim Richardson, Director of Magella, provides insight into why this has historically been the case and how IR35 is now forcing HR functions to adapt: 

 

The main reason why historically the Insurance industry, along with many others haven’t taken on contingent labour is they haven’t had the skills to do so. This, along with internal politics have made it difficult. However, it absolutely makes sense to have all types of resource managed through one function. If you can truly partner with the business on the type of resource they need, advise, facilitate and source, then HR and Talent Acquisition will be extremely effective.

This is where a Managed Service Program (MSP) becomes effective, as when considering the scope and depth of the IR35 legislation, the primary benefit of an MSP partner will be to assist and manage with a view to mitigating any risk that the changes might bring.

 

When managing a contingent workforce another consideration is the complexity of the supply chain relationship and transparency and governance of their contractual and regulatory responsibilities. Be it PSC’s, agencies, umbrella companies, intermediaries, PAYE, sole traders, end clients - it’s a minefield! Do HR, Talent Acquisition and Procurement have the bandwith and expertise?

 

It is therefore essential that supply chains comprise of fully vetted, compliant and trusted suppliers who act as true partners. Contributing to the overall success of the programme; remember, the overall risk for getting things right is with the ‘end user’ – you the client.

 

With talent shortages at a record high, fierce competition, and the emphasis on flexible working ever increasing, will the companies who adapt quickly and embrace the change thrive?

 

Future proofing now will certainly minimise the disruption for the future and give comfort that your resourcing strategy is aligned with your business strategy.

 

Want to know more? Contact Louisa Newell: louisa.newell@avenciaconsulting.com

References 

1. Groom, M. (2020, March 11) Government ‘gets IR35 done’: Deloitte comments on confirmed changes to off-payroll working in the private sector. Deloitte Press Releases. Available Here. 
2. Samolyova, A. (2020, September 16) How Covid-19 is Helping Procurement Departments Overcome Some Key Challenges. NelsonHall Blog. Available Here. 

 

Click here to read our current IR35 guide.