Culling contractors or leaving them in the dark is not the way to manage IR35 reform
With the introduction of IR35 reform in the private sector approaching rapidly, the national media has turned its attention to the issues that could stem from the roll-out of changes to the off-payroll working rules on 6th April.
In recent weeks, newspapers have rightly cast a spotlight on several private sector companies that aren’t handling the incoming reform responsibly – whether that’s by insisting contractors work on their payroll or failing to tell freelancers what they intend to do about the changes.
For example, Deutsche Bank has been criticised for its decision to offer its existing contractors PAYE only positions. The German company is the latest in a long line of financial services firms that expect independent workers to go PAYE – a move which would result in the contractor taking home significantly less.
As one contractor explained to The Financial Times, accepting a 25% pay cut simply isn’t an option: “If I accept Deutsche’s terms, I can’t just turn round to my mortgage lender and say, ‘can you drop my mortgage?’ I’m not even including all the other bills I’ve got. They would tell you where to go.”
The problem of blanketing extends across the financial services sector, with the likes of HSBC, Lloyds and Barclays already announcing they will stop engaging contractors outside IR35 before reform arrives.
The Financial Times has also focused its attention on Thomson Reuters, that was condemned for leaving freelancers and contractors in the dark about its IR35 plans. With 6th April now weeks away, freelance journalists engaged by the media group have taken action, writing to their client to tell them they will leave their roles if they are transferred onto the payroll.
All of the above paints a worrying picture, especially for contractors who already fear they will not be able to work outside the IR35 rules in due course. However, it does need to be made clear that this isn’t representative of the entire private sector. The off-payroll website, which was launched to help contractors ‘find fairer clients’, shows that many companies are doing the right thing, contrary to reports.
Nonetheless, businesses can learn lessons from the likes of Deutsche Bank and even Thomson Reuters for that matter. Deutsche Bank, in particular, is an example of how not to manage IR35 reform. Expecting genuine contractors to take home anything up to 25% less after 6th April will likely result in an exodus, with independent workers choosing to source outside IR35 opportunities elsewhere. After IPSE research suggested that few contractors would remain in their roles if placed inside the IR35 legislation by a client, this is a prediction that can be made with some confidence.
Meanwhile, the situation at Thomson Reuters illustrates the problems that will likely arise if contractors are not kept updated and important decisions are left too late. These businesses could have a revolt on their hands, possibly leading to walkouts that create skills gaps and jeopardise the completion of key projects.
Needless to say, it’s vital that companies communicate with the contractors they place and engage. Understandably, these workers want to know where they stand and if they will have their IR35 status assessed fairly. This isn’t that big of an ask in the grand scheme of things.
As reform to the off-payroll working rules close in, private sector businesses need to take a measured approach to reform and prioritise well-informed IR35 assessments. The companies that make the mistake of assuming that contractors will accept PAYE positions where they are taxed as an employee but receive zero employment rights in return could pay a heavy price in more ways than one.
With over 25 years’ experience, Qdos specialises in IR35 compliance. We conduct, on average, over 2000 IR35 status reviews every month and have handled more than 1,600 IR35 enquiries. We are working with over 200 agencies and end-clients to help them manage reform to the IR35 legislation.