The changes being brought about by the IR35 reforms will have a significant impact on both employers and freelance workers. Yet, it seems that organisations are failing to communicate with contractors about the shift. As an award-winning RPO, MSP and Talent Advisory company, PeopleScout lives and breathes the importance of internal and external candidate and employee communications.
A Brief Summary of IR35
IR35 is a set of tax laws designed to combat tax avoidance by freelance or contract workers and the organisations using their services (i.e., the end-client). These workers are typically self-employed and engaged by organisations through an intermediary rather than on an employment contract.
Determining whether a contract would be categorised as employment, in which IR35 applies, or as business-to-business services, in which IR35 would not apply, is complicated. If the legislation applies, a contractor could be significantly impacted financially as they would have to pay income tax and National Insurance Contributions (NICs) as if they were a full- or part-time employee. Employers would also be on the hook for taxes and NICs.
This off-payroll legislation was introduced to the public sector in 2017 and is now being extended to the private sector.
The Employer’s Responsibilities Under IR35
The responsibility of determining whether a contract sits within IR35 is not just up to the contractor. Both the contractor and end-client are equally accountable, and any unpaid tax can be collected from both parties if an error is made.
Yet, contract workers are largely uninformed about what their end-clients are doing to prepare for IR35. A recent survey of over 1,400 contractors who will be affected by IR35 reform revealed:
- 57% have not been contacted by their end-client about IR35 reform.
- Only 15% have received a Status Determination Statement (SDS), outlining their perceived IR35 position.
- Of those who have had their contract assessed, 56% have been determined as outside IR35, with 44% deemed inside the legislation.
- 28% have been informed of their end-client’s strategy for the changes but are yet to be issued with an SDS.
Given that IR35 in the private sector has already been postponed from April 2020 due to COVID-19, it’s surprising that companies, contractors and agencies are not better prepared.
The Importance of Communication About Compliance
Most companies are going to be affected in one way or another by IR35 reform. It’s imperative that you prioritise preparation for IR35 to ensure compliance, especially if you have contingent workers with hard-to-find specialist skills and knowledge.
As with any change, communication is key. Your contractors want to be kept informed about what you’re doing to ensure compliance, and if they don’t receive that reassurance they will move on to other projects or opportunities where the strategy is clear.
The last thing you need is to lose talent. This could impact your ability to service customers, to achieve strategic milestones and fulfil financial objectives. Contingent workers are an important part of your workforce, and communicating about your IR35 plans will keep them engaged and productive.