The IR35 legislation turned out to be quite a blow for contractors and recruiters alike. The latter, however, got the shorter side of the stick. They were to adjust on the go, while the intermediaries were given a year to get ready. This has caused a rift between the two parties. We are writing this blog post for the recruiters to help them build trust with contractors again.
The lack of government guidance in regard to IR35 has made it very hard for recruitment agencies to offer sufficient support to contractors. The employer side was then given a year to adapt to the changes. This led to many recruitment agencies choosing to postpone their IR35 optimisation for as long as possible. The consequence is that while the time given to adjustment is up and most companies are IR35-ready, the contractors lack faith in their readiness. This reflects in relationships, quality and a drop in talent retention. Naturally, a question raises - how to fix this? It may sound unrealistic, but the solution to this problem is also the cause of it. The IR35 legislation.
Despite the challenge it poses, recruiters have a vital role in helping both contractors and clients understand how the new rules will apply. It should be seen as an opportunity to establish themselves as trusted advisor to their clients. Providing clear support and guidance will set you apart from other agencies. In other words, to tower over the competitors, don’t let your contractors and businesses muddle through on their own.
Contractors Don’t Count on Your Help
In the IR35 specialist’s study shared by The Global Recruiter, 77% of the contractors said they didn’t know if they can trust their recruitment agency with aid in navigating IR35 reforms. The fear of not receiving the support needed has only been reaffirmed later. The cause was the ‘light-touch’ policy. Namely that it was implemented on the recruiters and the intermediate side but not the contractors.
It’s worth pointing out that the uncertainty among contractors isn’t just aimed at agencies. 22% said that they trust their hirers to correctly assess their IR35 status. To further illustrate the lack of faith in the other party, only 3% of respondents confirmed believing the private sector will be IR35-ready by April 2022. All this leads to one conclusion. Although an inconvenience, the legislation change can also be a great opportunity for recruiters. It can help build your company’s authority by positioning yourself as a trusted advisor.
How to Build Trust with Contractors?
The best way for the recruiter to build trust with a contractor is to guide them. The IR35 implementation creates a great opportunity to do just that. It is often perceived that recruiters only mind the interest of the employer, not as much as that of the candidate. There is no time like now to change that stereotype.
It’s important to keep in mind that your contractors feel vulnerable right now. They might be confused, infuriated, insecure, etc. But most of all, they feel like they have been left to deal with it all alone. Nothing helps building a relationship as much as extending a helping hand.
Understanding the IR35 Changes
Before you can begin advising others, you need to understand IR35 yourself. Ensure that you and your team have a full and thorough understanding of the changes. We have no doubt you already know the basics, therefore we won’t repeat them. Instead, we will briefly summarise the most important moments and emphasises the consequences of non-compliance. These are the main things you will be wanting to communicate to the contractors and clients.
Key Terminology
The IR35 legislation includes many terms an average contractor or an employer may not be familiar with. Here are some of the trickier yet very important ones you want to ensure everyone involved knows:
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Status Determination Statement (SDS) – an assessment that declares the employment status of an assignment;
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Personal Services Company (PSC) - limited company in which the contractor is the director;
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Part and Parcel - the level at which the contractor is integrated and embedded within the organisation;
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Mutuality of Obligation (MOO) - an agreement to whether a client is obliged to offer work (and pay the contractor) and if the contractor is obliged to take it;
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NIC - National Insurance Contributions;
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Disguised Employee - a contracted worker who fills a position in a company and works under terms that would make them an employee but don’t pay the income tax and NIC;
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Inside IR35 - HMRC deems a contractor as an employee and is therefore liable for income tax and National Insurance deductions;
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Outside IR35 - a contractor is not classed as an employee and does not have the burden of income tax and National Insurance deductions.
The Consequences
During the ‘light-touch period’ there was little to no information on what consequences the companies were to face in the event of non-compliance. Many speculated it would be worse than the penalties applied to the contractors:
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A penalty of 30% of unpaid tax if HMRC deems the non-compliance was not intentional;
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A penalty of 70% of unpaid tax if HMRC finds that the IR35 status was known to the contractor but they chose not to act;
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100% of unpaid tax if HMRC finds that the contractor actively tried to conceal theirIR35 status and underpayment of tax.
However, it is debatable whether it truly is. Starting April 2022, when all parties involved are going to be punished for a failure to comply, it’s known that the employing side will be liable for the contractor's tax and national insurance contributions. It makes it the same as what the contractors were subjected to. However, they will also be required to pay the employer NICs and the apprenticeship levy, with interest charged for late payment.
Becoming a Trusted Advisor
With the IR35 in place, recruiters now have a vital role in helping contractors and clients understand how the new rules will apply. Adjusting the agency’s processes to be compliant with the changes in the legislation is half of the job done. The second challenge is posed by the need of having to communicate them to the involved parties effectively. Tailoring a personal approach to each will help you build trust and credibility. And position yourself as an empathic and knowledgeable advisor, not just a third party.
Sufficient IR35 Policies and Procedures
Before you can begin advising on correct IR35 procedures, you need to ensure your own company follows them. A good idea would be to hire an IR35 consultant. Dedicate a day during which your entire company would undergo a workshop. The consultant would explain all there is about the legislation in greater depth.
When everyone is on the same page, you can begin adjusting your internal processes. The best place to start is onboarding both, the contractor and the client. During this process, you’d walk them through the requirements, the factors and the potential fees in case of non-compliance. You should also put a system in place for checking the contracts, as well as keeping an eye on exemptions in case their status changes. In other words, the first step in becoming an IR35 advisor is learning and applying the legislation yourself.
Communication as a Strategy
We cannot emphasise enough that key to both, making the transition easier and establishing yourself as a trusted support system, is communication. Naturally, you won't be relaying the same type of information to different parties. That would be a waste of everyone’s time as some bits relevant to contractors are irrelevant to the employers and vice versa. However, even with the fundamental information that is important to both, you will need to work out an individual approach.
Simply put, they will be viewing the same facts from a different perspective. And your job is to put them in the right context. The easiest example of this is what happens if they are caught not following the regulations. Both parties need to be informed of the fact they will get punished. However, since the consequences of non-compliance vary, you won’t communicate measures that are applied to the other side. It is important to be spot-on with accuracy and relevance if you want to be a trusted source. Therefore the advice you provide must always be personalised to the party you’re speaking to.
Government Tools Don’t Work
Although the HMRC has come up with an online tool aimed at contractors, it is far from being a trusted source. It’s debatable whether it was built to be that in the first place, or if it’s designed to give the user an approximate pointer. Either way, this leads the contractors exposed to a threat of a penalty. This is the leading reason behind 80% of the quizzed contractors confirming they would favour recruiters that offer sufficient IR35 procedures and/or outside the IR35 works. In other words, being IR35 compliant and willing to offer to do most of the heavy lifting in regards to it will put you ahead of the competitors.
Timesheet Portal – Helping to Navigate the IR35 changes
The government might not have not supplied the contractors or intermediaries with sufficient tools. But software vendors like Timesheet Portal have updated their original platforms with IR35-aimed features. For example, formerly our approval module was bound to run based on the time rates only. With the change in the legislation, we have introduced an option for it to function on a delivery basis instead. This has been done in light of the fact that being paid for the hours spent as opposed to the deliverables is one of the ruling IR35 factors.
With that said, it’s important to point out that while our Recruitment tool is aimed at aiding the recruiters in staying IR35 compliant, it’s not equipped to help you rule out the status of the contractors. However, most of the previous existing key functions have now been upgraded to accommodate the new off-payroll rules if you have the need for them. To get a better grasp of what we have to offer for contractor management, we strongly suggest exploring various options the software has to offer and we promise you will find a sufficient one.
Summary
The IR35 changes haven’t just brought up a lot of controversies. It has also shaken up the relationship between recruitment agencies and contractors. Since the employers and recruiters were given an additional year to adjust, whereas the contractors were to take on the heat, the former wasn’t in such a rush to adjust their companies. This made the contracted workers lose faith in being assisted in regard to the IR35 concerns.
However, it’s not too late to fix that bond. The best way is to actually take the initiative when addressing the new off-payroll regulations and advising the contractors/clients along the way, as opposed to when the crisis arises. This will establish you as a knowledgeable and responsible business, looking out for the ones you work with. In the competitive world of recruitment, such a trust-driven reputation will work wonders for both the attraction and retention of clients and contractors.
Are you ready to rise above the competition? Just ask us for a headstart.
Disclaimer: The information in this article is provided to the best of our knowledge and serves as a general guide to the IR35 legislation. You should always make your own enquiries with HMRC or a qualified legal / financial expert in this area before acting on any of our advice.
