IR35 has been around for a long time, but in its new guise, the impact of the reformed legislation will be far reaching. The off-payroll changes essentially reposition how external staff such as contractors, freelancers and personal service companies are hired and retained throughout their contracts.
HR teams across the UK sat listening intently to the Chancellor of the Exchequer as he delivered the 2021 budget recently. However, the announcement did not denote much relief after an already disruptive year. With just under a month left to go before the changes are instated, HR teams will need to turn lemons into lemonade if businesses and their new workforces are going to adapt and thrive.
If we look in the rear-view mirror for just a moment though, we might see how this lemonade stand might be sweeter than we had initially imagined. The way we work has been shifting for some time. There are nearly 1.5 million freelancers in the UK and prior to the pandemic, external workers accounted for nearly 42 percent of organisations’ overall workforce spend. For small businesses, just a few years ago, 67% of SMEs said that they supplement their core payroll with freelance assistance.
This trend is set to continue with it being predicted that the number of “digital nomads” will reach 1 billion by the year 2035, posing real questions for Millennials and Gen Z and what they may want from their future career. Particularly with a recent survey showing that for the vast majority (87%) of UK graduates, freelancing is an attractive and lucrative career option.
Add to that, the fact that the freelance trend gained traction post the 2007 – 2009 recession, we can hazard an educated guess that the recovery from our current downturn is likely to take a similar path. Economists expect a stronger and faster economic recovery than after the previous financial crisis which will also drive demand for an agile workforce. Essentially, there is increasing alignment between organizations requiring highly skilled external talent and individuals’ preference for freelancing and for that, HR teams will not only need to understand the details surrounding IR35 but also how to manage it effectively as we emerge post-COVID.
Under the hood of IR35
A good way to understand IR35 is to compare it to hiring an electrician to rewire your living room. You may search the internet for contractors and request quotes, working through the most important factors, like price, experience and availability. Once you select an electrician, you would agree on the scope of work, the timeline and the price. You would then pay them the final amount due when the job was done, or if not completed to standard, ask them to revisit, finish the job and then settle the bill.
You wouldn’t, for example, provide the electrician with detailed instructions on how to conduct the work every step of the way. Nor would you request that the electrician work on another unrelated project simultaneously, like landscaping the garden. And you certainly would not pay the electrician if the job wasn’t complete when the project ended.
This analogy provides a good guide for how HR teams need to think about hiring freelancers and appropriately categorise the remaining temporary workforce. They should approach the external workforce as they would a living room rewire. Once personnel understand the correct approach, they can excel beyond merely checking for compliance and instead focus on the ways in which this new legislation can enhance its workforce.
Choosing the right team
According to recent research from SAP and Oxford Economics, more than half of executives specifically credit the external workforce with helping their businesses to recover from downturns. There is also the organic growth of the freelance market as demand increases.
However, with more talent scouts looking to incorporate the skills of freelance workers, competition will become a challenge for HR teams trying to secure the best talent. This may even initiate a “freelancers’ market” where external workers dictate the terms and conditions of their tenure at the organisations that have the most attractive offering.
It is therefore down to the HR department to prove that they are the best option, and this all starts at the procurement stage. Addressing IR35 should be the trigger for reimagining workforce procurement management systems to guarantee compliance, but also to create an outstanding procurement function that enhances the work engagement from a freelancer’s perspective.
The key to attracting and optimising high-quality talent is in digitising procurement. By looking to cloud-based solutions, HR can access and rely on data, analytics and automation that will help them to make more informed decisions and respond faster to emerging risks.
The knock-on effect is then the ever-important service that it provides to external workers. Though highly skilled external workers provide businesses with the flexibility they need to withstand turbulence, according to the research they are often undermanaged, therefore limiting organisations from realising the full value of their skills. Through the digital transformation of external workforce management, personnel can gain vital visibility, enabling them to consistently manage and improve return on investment. By actively managing their external workforce with the transparency and real-time insights made possible through cloud-based applications, HR teams can be crucial in expanding value, strengthening compliance and reducing risk.
HR understands what freelancers want – quick, seamless contracts, underpinned by due diligence and relevant checks along with timely payments. These aspects are likely to be the deciding factors when committing to an organisation. If they can meet these requirements, recruitment stands a chance of securing the best talent for the job and possibly the bridge to recovery and future success.
Talent specialists can’t deny the anticipated need for freelancers post-COVID and embracing a digital workforce management system is the first step to simplifying this process under the IR35 umbrella. If HR can take what appears to be a complicated hiring barrier and turn it into a beneficial external workforce procurement change, they would have overcome a hurdle that will have stunted many and reap wider business benefits as a result.
Henrik Smedberg is the Head of Intelligent Spend Management (SAP Ariba Fieldglass) at SAP UKI. He has held leadership roles in the software industry in all corners of the world, including Australia, the Nordics, USA, Africa and now the UK. He is passionate about growing individuals and teams and helps customers to become digital leaders and better the world of procurement.