Working with Freelancers After the Private Sector Reforms
Published: 10/04/2022
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In this article, we aim to engage both recruiters and business owners who work directly with contractors. The IR35 legislation has complicated the process of collaborating with freelancers, but when approached correctly, it can quickly transform into a wealth of new opportunities. This is why we encourage 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 providing the contractor with the Status Determination Statement (SDS). Additionally, one-fifth of the companies involved with the contractors continue to make blanket IR35 assessments. Given that the ‘light-touch’ period has now expired, this is a highly unsettling statistic that may lead to a rift between the contractors and recruitment agencies. However, it could also serve as a new communication and alignment touchpoint if managed correctly.
Today, we want to discuss how to collaborate effectively with freelancers now that the IR35 reform has come fully into effect, ensuring this partnership is advantageous for all parties involved. Despite being the source of many controversies, the changes in private sector legislation have the potential to become a turning point for both the contractor and recruitment markets.
The short answer is no. While it is causing a considerable amount of inconvenience to them, primarily reflected in financial losses, the contractors are unlikely to go away. Typically, workers who operate on a contract basis are senior in their roles, and the company cannot match their independent income rate. Furthermore, as contracting is fraught with challenges and legal hurdles, most freelancers are well seasoned in confronting similar changes head-on.
What you should be asking instead is how the IR35 changes will affect contractors’ willingness to work with recruitment agencies. A study conducted by The Global Recruiter has revealed that 77% of the surveyed contractors lack confidence in recruiters adjusting their operations regarding IR35 compliance. This presents a significant opportunity to outshine your competitors in talent attraction and retention—becoming an IR35 advisor before they do.
The most critical moment for the contractor recruiter is not merely matching the right candidate with the right client, but ensuring that the candidate has been onboarded in the smoothest and most informative manner. From the information you collect to the processes through which you pull new contractors’ data, onboarding is one of the most important operations. With the IR35 changes, it now carries a new layer of urgency.
One of the key moments when you match a contractor with an employer is determining whether they fall into IR35 territory or not. Although there are multiple factors that may deem a contract non-compliant (we have them listed), there are fewer criteria that indicate you’re in the clear. Specifically, there are two definite exemptions from 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.
To do your due diligence, we strongly advise reviewing the contracts offered to your supplied workers, even if the employer claims to be IR35 compliant. In particular, pay attention to clauses regarding invoicing structures and equipment. A contractor should be paid by invoicing the employer for deliverables, rather than receiving a consistent amount and frequency of payment that resembles a salary. Additionally, a contractor must use their own equipment instead of the company’s property. Finally, ensure that there is no MOO (mutuality of obligation) in place, as that is the biggest IR35 red flag.
As you’ve gathered, documentation plays a particularly important role in ensuring that every party is IR35 compliant. As the intermediary between the employer and the contractor, you are directly responsible for the documentation. From onboarding and storing the contractor’s information to reviewing the client’s requirements and issued contracts, your agency should serve as the hub for information on both sides.
To put it simply, paperwork accumulates very quickly and is easily misplaced. This is why we cannot emphasise enough how crucial it is to maintain a digital version of these documents in cloud storage. Not only does this ensure the safety of the documents, but certain systems also make it very easy to organise them according to any 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 regarding receiving help and support from the recruiting firms. Demonstrating that you are not only empathetic but also capable of providing valuable assistance is one of the best opportunities to establish a trust-driven relationship.
Granted, the reform is causing inconvenience to everyone: you, the client, and the freelancer. The latter is likely to experience financial losses that may subsequently affect their work-life balance. This may lead to your contractors, depending on their personality, becoming grumpier and less collaborative in the future. However, you must remain empathetic and do your utmost to support them.
A good idea is to turn away from the negatives and instead focus on the positive aspects that arise from the legislative change. For example, the fact that contractors are now better protected by the government. Communicate to them that while it may be a source of trouble now, a quick adjustment could lead to future opportunities. Additionally, reassure them that you are still on their side and will continue to be there for them if any IR35 questions arise. In other words, you must ensure that 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 genuinely useful to them. Becoming an advisor in IR35 matters will position you as a trustworthy source of assistance they can rely on. However, there is one caveat – before you can offer valuable advice, you must be fully conversant with all the intricacies of the legislation. This level of knowledge also needs to be consistent throughout your entire organisation.
To achieve this, we recommend hiring a specialist or a team of specialists focused solely on IR35. Then, allocate a day or two during which they can hold seminars and workshops for your teams. Consider incorporating an exam at the end to ensure everyone in your company is equipped to provide your clients with accurate advice. Being IR35 compliant is one thing; being able to guide your colleagues through it is a step above that, and it forms the true foundation of trust.
While neither the recruiters nor the contractors have welcomed the change in legislation, certain issues need to be clarified. There was some bad blood over the fact that the contracted workers, unlike recruitment agencies and employers, were given a year to adjust without facing penalties for unintentional non-compliance. Ultimately, however, all parties are in the same boat now and should strive to work together. Collaboration, communication, and mutual support will undeniably enable both sides to emerge from this minor inconvenience stronger and more prepared to achieve new professional heights.
While there are no tools exclusive to IR35, a range of recruitment software has adjusted its functionality to accommodate the change. At Timesheet Portal, we initially developed our Recruitment product to cater to contractors and have consistently upgraded it in response to industry trends and requirements. That said, we have prepared our platform to support the IR35 changes by adding features such as a choice between time rates and deliverables in our approval module.
Although we cannot lift all the IR35-related tasks off the shoulders of the recruiters, we aim to simplify the process. We achieve this by enhancing our automation options with national insurance deductions, income tax charges, and other variables that come into play when a contractor falls under IR35. Our software is designed to enhance both scalability and quality of collaboration, together.
The IR35 won’t eliminate the demand or supply of contractors. However, due to a lack of faith that contractors have in agencies providing them with adequate support on the matter, their willingness to collaborate with recruiters may decline. This presents a golden opportunity for you to establish yourself as an ally who is not only ensuring your internal procedures comply with the law but is also willing to support and guide those you work with.
With sufficient training and the right tools, you can transform a challenge that disadvantages agencies into an opportunity for your business to thrive. The IR35 reform creates ideal conditions for building or strengthening trust-driven relationships with both your clients and contractors. This is the direct route to enhancing retention, fostering a credible reputation, and facilitating accelerated growth in the future.
Are you prepared to embrace this opportunity? Allow us to assist you.
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.