Working with Freelancers After the Private Sector Reforms
Published: 10/04/2022
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In this article, we want to talk to both recruiters and business owners that work with the contractors directly. TheIR35 legislation has made working with freelancers trickier, but when done right it will soon become a cornucopia of new opportunities. This is why we want you to master it as soon as possible.
According to IPSE, the Association for Independent Professionals and the Self Employed, 38% of companies are not passing the contractor the Status Determination Statement (SDS). Additionally, one-fifth of the companies involved with the contractors are still making blanket IR35 assessments. Given that the ‘light-touch’ period has now expired, this is a highly unsettling statistic that may become grounds for a rift between the contractors and recruitment agencies. However, it can also become a new communication and alignment touchpoint if done correctly.
That’s what we want to talk about today - how to proceed to work with freelancers after the IR35 reform has come into full power and make this union beneficial to all parties involved. While the basis of many controversies, the change in the private sector legislation has the potential of becoming the turning point for both the contractor and the recruitment markets.
The short answer is no. While it is causing a fair deal of inconvenience to them, mostly reflected in financial losses, the contractors aren’t likely to go away. Most often, workers that run on a contract basis are senior in their roles and the corporate cannot match their independent income rate. Additionally, with contracting being filled with challenges and legal hoops, most freelancers are well seasoned in taking similar changes head-on.
What you should be asking instead is how will the IR35 changes reflect on the contractors’ willingness to work with the recruitment agencies. A study conducted by The Global Recruiter has revealed that 77% of the surveyed contractors don’t have the faith in the recruiters adjusting their operations in regard to the IR35 compliance. This opens the door to a great opportunity of beating your competitors in talent attraction and retention - becoming an IR35 advisor before they do.
The most critical moment for the contractor recruiter is not matching the right candidate with the right client - but ensuring the candidate has been onboarded in the smoothest and most informative manner. From the information you collect to the processes you pull new contractors’ data through, onboarding is among the most important operations. With the IR35 changes, it now has a new layer of urgency to it.
One of the key moments when you match a contractor with an employer is to determine whether they fall into the IR35 territory or not. Although there are multiple factors on which the contract may be deemed to be non-compliant (we have them listed), there are fewer criteria on which you’re in the clear. Namely, there are two definite exemptions from the IR35: having the company based overseas or being recognised as a small business. With the latter, however, it’s important to remember that if the business grows, it may become IR35-eligible.
o do your due diligence, we strongly advise reviewing the contracts offered to your supplied workers even if the employer claims to be IR35 compliant. Namely, pay attention to clauses in regards to invoicing structures and equipment. A contractor should be paid through invoicing the employer for deliverables and not be receiving consistent amount and frequency payment that would resemble salary. Additionally, a contractor is to use their own equipment as opposed to the company’s property. Lastly, ensure there is no MOO (mutuality of obligation) in place as that’s the biggest IR35 red flag.
As you’ve gathered, documentation plays a particularly important role when ensuring every party is IR35 compliant. As the middleman between the employer and the contractor, you are directly in charge of the documents. From onboarding and storing the contractor’s information to reviewing the client’s requirements and issued contracts, your agency should become the hub for information on both sides.
To put it simply, the paperwork accumulates very fast and is easily lost. This is why we cannot empathise enough about how important it is to keep a digital version of them in cloud document storage. Not only does this ensure the safety of the documents, but certain systems will make it very easy to organise them based on whatever criteria you have in place.
Most of the tools provided by the government, such as the CEST calculator, are known to be inaccurate and therefore jeopardise the contractors who choose to trust them. However, as already determined, the contractors are also sceptical in regards to receiving help and support from the recruiting firms. Proving them that not only are you empathetic but are also capable of providing valuable help is one of the best opportunities to establish a trust-driven relationship.
Granted, the reform is causing inconvenience to all: you, the client and the freelancer. The latter is likely to suffer financial losses that may then affect their work-life balance moving forward. This may have your contractors, depending on their personality, be grumpier and less collaborative moving forward. However, you must remain empathetic and do your best to support them.
A good idea is to turn away from the negatives and instead focus on the good things that come out of the legislation change. For example, the fact that the contractors are now better protected by the government. Communicate to them that while it is the source of trouble now, a quick adjustment may mean the rise of future opportunities. Additionally, ensure them that you are still on their side and will continue being there for them in case of any IR35 questions arising. In other words, you must have your clients and contractors know they are not left to figure things out alone.
Of course, you don’t want to simply talk the contractors’ or clients’ ears off - you want to be truly useful to them. Becoming an advisor in IR35 matters will position you as a trustworthy source of help they can turn to. However, there is one ‘but’ in this - before you can offer valuable advice, you need to be fully on board with all the cracks and nooks of the legislation. And this level of knowledge needs to be consistent across your entire organisation.
To achieve that, we recommend hiring a specialist or a team of specialists that are focusing solely on IR35. Then, allocate a day or two in which they would hold seminars and workshops for your teams. Consider adding somewhat of an exam at the end, just to ensure everyone across your company is equipped to give your clients correct advice. Being IR35 compliant is one thing. Being able to guide the people you work with through it is a step above that, and it is the true foundation of trust.
While neither the recruiters nor the contractors have welcomed the change in the legislation, some things need to be cleared out. There was some bad blood over the fact the contracted workers, unlike recruitment agencies and the employers, were given a year to adjust and not be punished for unintentional non-compliance. But ultimately, all parties are in the same boat now and should therefore strive to keep on working together. Collaboration, communication and helping each other improve will, undeniably, make both sides come out of the minor inconvenience better and readier to achieve new professional heights.
While there are no IR35-exclusive tools, there is a range of recruitment software that has tinkered with its functionality to accommodate the change. At Timesheet Portal, we have first developed our Recruitment product to cater for the contractors and have therefore never stopped upgrading it in regards to industry trends and requirements. With that said, we have prepared our platform to support the IR35 changes by adding small bits such as a choice between time rates and deliverables in our approval module.
Although unable to lift the entirety of the IR35-related tasks off the shoulders of the recruiters, we aim to make the process easier. We do that by enhancing our automation options with national insurance deductions, income tax charges and other variables that occur when the contractor falls within the IR35. Our software is designed to help you both scale and improve the quality of collaboration, together.
The IR35 won’t make either demand or supply of the contractors go away. However, due to a lack of faith the contractors have in agencies providing them with sufficient support on the matter, their willingness to work with the recruiters may decline. This is a golden opportunity for you to establish yourself as an ally who is not just bringing your internal procedures to adhere to the law, but who is willing to support and guide the people you work with.
With sufficient training and designated tools, you can turn something that puts agencies at a disadvantage into something that makes your business flourish. The IR35 reform creates perfect conditions for you to either build or deepen trust-driven relationships with both your clients and contractors. This is the straight path to the improvement of retention, credible reputation and accelerated growth moving forward.
Are you ready to take on this opportunity? Let us help.
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.