The announcement of IR35 was heralded as something of a death knell for the contract industry. Removing the wriggle room of those seeking loopholes to avoid paying tax – or, at least, the right amount of tax – the legislation was meant to be a force for good for the UK economy. But for many, it was perceived as potentially having one massive, unintended consequence: the end of the contract worker marketplace. The end of an established lifestyle for millions of the UK’s self-employed. And the end of one contract type for all assignments.
But although adapting to the new legislation has thrown up a multitude of problems for many businesses, including a reduction in the number of contract workers now available, it hasn’t been as cataclysmic as widely feared. And with a proper understanding of the regulations – and of the help available – it is possible to operate at an almost ‘business as usual’ level.
What has been the initial fall out from IR35?
It’s been almost seven months since the new legislation came into force. In that time, it’s become clear that the new arrangements have caused difficulties for businesses. Some contract workers (14%, according to recent research conducted by Cool Company) have reported a decrease in the amount of work they’ve been able to secure, driven primarily by the fact that their clients have been unwilling to engage with the complex IR35 assessment system.
Because, previously, dealing with contractors has been a really easy option for businesses. Once the contract had been struck, all that was left for the business to do was provide a brief and clear invoice. It was quick and simple, leaving the contractor to manage the rest. Now, there’s the employee onboarding, employment contract, payroll, HR, holidays, sick leave, and all the other attendant paperwork. Or, if you’re continuing to work within a contracting system, you have the burden of proving that the talent you’re using are genuinely not employees.
On top of that, there has also been a significant fall in the number of contract workers willing to operate in the UK in certain sectors. It’s not just Brexit and Covid-19 driving the shortage of HGV drivers, IR35 has played its part too. With European drivers no longer able to off-set the cost of working away from home with the more favourable tax rate of the self-employed. Instead, they’re seeking more opportune employment conditions in other countries. The same applies across numerous other sectors.
But this needn’t be the case. There are easier solutions that remove the IR35 risk, without taking on the burden of additional red tape. And the simplest solution is offered by umbrella companies.
What is an umbrella company?
An umbrella company is essentially an intermediary for contract workers and businesses. Managing payment, contracts, and HR, they provide a one-stop freelance acquisition platform for businesses. While enabling contractors to continue operating their businesses, and picking their clients, without the worry of breaching legislation.
How can umbrella companies benefit businesses in the light of IR35?
For SMEs in particular, the contract marketplace has been invaluable. It provides access to essential skills without the need for lengthy contracts, or often the expense of implementing an in-house payroll and HR system.
With an umbrella company, that procedural setup is still possible. Businesses are left with the ability to scale, increasing – or decreasing – the contractor workload according to their needs at any given time. And without the administration of onboarding inhouse employees. They simply select the freelance talent they require, and pay the umbrella company as they would any other service provider. The umbrella company handles all the admin, and the freelancer gets the work they need. With no risk on any side.
In the last six months, the use of umbrella companies in the UK has jumped by 811%. Indicating that it’s a model that works as well in practice as it does in theory, for both contract workers and the businesses that need their skills.
That just leaves the question of how businesses can attract and retain the best contractor talent at a time of limited resources.
How to attract and retain top talent in your contractor pool
The contract workforce is looking for the same from their clients, as employees look for from the businesses they work with.
They need fair payment, which is delivered on time and without prevarication. Umbrella companies can help with this. As all payment is outsourced, your umbrella company will ensure that payment is made as agreed, as long as the work is completed. Protecting the business’ funds, as well as the contractor ’s income.
Contractors are also seeking professionalism, to be treated with courtesy, and for job expectations to be reasonable. Briefs should be clear, with well-defined direction provided, as well as access to the necessary resources, where relevant. And to keep your contractors loyal to your business, it can be a good idea to show them how they are contributing to your business – and how valued that contribution is. If you build a relationship with your contract workforce, they can play as much of a role within your company culture as any inhouse employee. Sometimes more, because they have the instant flexibility to walk away, and yet, they choose not to.
The contract workforce has become an invaluable component of the UK economy in the last decade. Between 2008 and 2019, the contract sector saw a 53 per cent increase, and that doesn’t factor in the growth in this area associated with the Covid-19 pandemic. These workers have fed the country’s thriving SME community, which now accounts for 52% of private sector turnover and 60% of all private sector jobs in the UK (a total of 16.6 million). Without freelancers and contractors, many SMEs simply couldn’t survive. And the disruption of this part of the economy just wasn’t the intended purpose of IR35. Umbrella companies offer a solution to prevent that disruption taking root.