How to Build Trust and Relationships with Contractors
Published: 03/02/2020
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The IR35 legislation proved to be quite a blow for contractors and recruiters alike. However, the latter received the shorter end of the stick. They had to adjust on the go, while the intermediaries were given a year to prepare. This has created a rift between the two parties. We are writing this blog post for recruiters to help them rebuild trust with contractors once again.
The lack of government guidance regarding IR35 has made it very difficult for recruitment agencies to provide adequate support to contractors. The employer side was then given a year to adjust to the changes. This led many recruitment agencies to choose to postpone their IR35 optimisation for as long as possible. The consequence is that while the time given for adjustment is up and most companies are IR35-ready, contractors lack confidence in their readiness. This affects relationships, quality, and talent retention. Naturally, a question arises - how can this be fixed? 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 play a vital role in helping both contractors and clients understand how the new rules will apply. This should be viewed as an opportunity to establish themselves as trusted advisors to their clients. Providing clear support and guidance will differentiate you from other agencies. In other words, to stand out among competitors, don’t allow your contractors and businesses to muddle through on their own.
In the IR35 specialist’s study shared by The Global Recruiter, 77% of contractors indicated they weren’t sure whether they could trust their recruitment agency for help with navigating IR35 reforms. Their fears of not receiving the necessary support have only been reinforced since then. The issue stemmed from the ‘light-touch’ policy, which was applied to recruiters and the intermediate side but not to the contractors.
It’s important to note that the uncertainty among contractors isn’t solely directed at agencies. Twenty-two percent indicated that they trust their employers to accurately assess their IR35 status. To further illustrate the lack of confidence in the other party, only three percent of respondents confirmed believing that the private sector will be IR35-ready by April 2022. All this leads to one conclusion: although an inconvenience, the legislative change can also present a significant opportunity for recruiters. It can help establish your company’s authority by positioning yourself as a trusted advisor.
The best way for a recruiter to build trust with a contractor is by guiding them. The implementation of IR35 creates a significant opportunity to do just that. It is often perceived that recruiters prioritise the interests of the employer over those of the candidate. Now is the perfect time to change that stereotype.
It’s important to remember that your contractors feel vulnerable right now. They may be confused, frustrated, insecure, and so on. Above all, they feel like they have been left to handle everything alone. Nothing helps build a relationship quite like extending a helping hand.
Before you can advise others, you must understand IR35 yourself. Ensure that you and your team have a comprehensive understanding of the changes. We have no doubt you know the basics, so we won’t repeat them. Instead, we will briefly summarise the key points and emphasise the consequences of non-compliance. These are the main aspects you will want to communicate to the contractors and clients.
The IR35 legislation includes many terms that an average contractor or employer may not be familiar with. Here are some of the trickier yet very important ones that you should ensure everyone involved knows:
Status Determination Statement (SDS) – an assessment that declares the employment status of an assignment;
Personal Services Company (PSC) - limited company in which the contractor is the director;
Part and Parcel - the level at which the contractor is integrated and embedded within the organisation;
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;
NIC - National Insurance Contributions;
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;
Inside IR35 - HMRC deems a contractor as an employee and is therefore liable for income tax and National Insurance deductions;
Outside IR35 - a contractor is not classed as an employee and does not have the burden of income tax and National Insurance deductions.
During the ‘light-touch period,’ there was little to no information on the consequences companies would face for non-compliance. Many speculated that these penalties would be worse than those imposed on the contractors:
A penalty of 30% of unpaid tax if HMRC deems the non-compliance was not intentional;
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;
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 in April 2022, when all parties involved will face penalties for failing to comply, it is known that the employing side will be liable for the contractor's tax and national insurance contributions. This aligns it with what contractors were previously subjected to. Additionally, they will also be required to pay the employer NICs and the apprenticeship levy, with interest charged for late payment.
With IR35 in place, recruiters now play a vital role in helping contractors and clients understand how the new rules will apply. Adjusting the agency’s processes to comply with the changes in legislation is half of the job done. The second challenge lies in the need to communicate these changes effectively to the involved parties. Tailoring a personal approach to each will help you build trust and credibility, positioning yourself as an empathetic and knowledgeable advisor, rather than just a third party.
Before advising on correct IR35 procedures, ensure your company adheres to them. It would be wise to hire an IR35 consultant. Dedicate a day for a workshop involving your entire company. The consultant will explain the legislation in greater detail.
When everyone is on the same page, you can start adjusting your internal processes. The best place to begin is onboarding both the contractor and the client. During this process, you'll walk them through the requirements, factors, and potential fees in case of non-compliance. You should also establish a system for checking the contracts, as well as monitoring exemptions should their status change. In other words, the first step in becoming an IR35 advisor is to learn and apply the legislation yourself.
We cannot emphasise enough that the 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 waste everyone’s time, as some details relevant to contractors are irrelevant to employers and vice versa. However, even with the fundamental information that is important to both, you will need to develop an individual approach.
In simple terms, they will view the same facts from a different perspective, and your role is to provide the proper context. A clear example of this is when they are caught not following regulations. Both parties need to understand that there will be consequences. However, since the consequences of non-compliance vary, you should not communicate the measures that apply to the other party. It is essential to maintain accuracy and relevance if you want to be a trusted source. Therefore, the advice you offer must always be tailored to the individual you’re addressing.
Although HMRC has introduced an online tool for contractors, it is far from being a reliable source. It’s debatable whether it was intended to be that in the first place, or if it’s designed to provide users with a rough guide. Either way, this exposes contractors to the risk of a penalty. This is the primary reason why 80% of the contractors surveyed confirmed they would prefer recruiters that implement adequate IR35 procedures and/or offer outside IR35 work. In other words, being IR35 compliant and willing to handle most of the related responsibilities will give you an advantage over competitors.
The government may not have provided contractors or intermediaries with adequate tools. However, software vendors like Timesheet Portal have updated their original platforms with features aimed at IR35 compliance. For instance, our approval module used to operate solely based on time rates. With the legislative changes, we have introduced the option for it to function on a delivery basis instead. This adjustment reflects the fact that being compensated for hours worked rather than deliverables is one of the key IR35 factors.
With that said, it’s important to note that while our Recruitment tool aims to assist recruiters in staying IR35 compliant, it’s not designed to determine the status of contractors. However, many of the existing key functions have now been upgraded to meet the new off-payroll rules, should you need them. To better understand what we offer for contractor management, we strongly encourage you to explore the various options available in the software, and we promise you will find a suitable choice.
The IR35 changes have not only sparked a lot of controversies but have also disrupted the relationship between recruitment agencies and contractors. While employers and recruiters were granted an additional year to adjust, contractors were left to bear the burden, which meant that the former did not feel as urgent about modifying their companies. As a result, contracted workers have started to lose faith in receiving support regarding IR35 concerns.
However, it’s not too late to mend that bond. The best approach is to proactively address the new off-payroll regulations and provide guidance to contractors and clients along the way, rather than waiting for a crisis to occur. This will position you as a knowledgeable and responsible business that cares for those you work with. In the competitive field of recruitment, such a trust-driven reputation will greatly enhance the attraction and retention of clients and contractors.
Are you prepared to surpass the competition? Simply reach out for a head start.
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.