Recruiters AND IR35 REFORM

With the off-payroll reforms now implemented, what does this mean for recruiters?

Off-payroll rules have now been introduced to the private sector. Also known as the IR35 reform, these new rules shift the liability of employment status determinations from the contractor to the fee payer; while this usually falls to the client, recruitment agencies can often be responsible for this decision.

So, as a recruiter, how should you prepare for the changes ahead? With the temporary/contract placement industry valued at over £30 billion, it’s not in recruitment agencies’ interests to deter contractors and threaten their competitiveness. It’s also a very bad idea to apply blanket determinations, as seen across the public sector when the IR35 reform was introduced back in 2017. Instead, recruiters need to get to grips with how the new off-payroll rules will impact the private sector and take simple steps to support their contractors.

Here’s how you can prepare for the IR35 reform:

Apply the off-payroll rules to contracts on a case-by-case basis

Blanket IR35 determinations caused uproar in the public sector. Contractors working with organisations from the BBC to the NHS have faced a great deal of trouble and missed out on thousands of pounds’ worth of earnings thanks to unfair assessments of their individual working arrangements. In far too many instances, genuine contractors have been out of pocket as they’ve been automatically placed inside IR35 incorrectly, and it’s caused many to seek work elsewhere.

To ensure the same doesn’t happen in the private sector post April 2021, recruitment agencies have an important role to play in reassuring contractors. If they demonstrate that they will look at contracts and projects on a case-by-case basis and support contractors to work outside of IR35, they are far more likely to retain talent.

Work with everyone in the supply chain to understand employment status

The trouble with the IR35 reform is that it takes the power out of the contractor’s hands in determining their own employment status, and instead gives it to the fee payer. This is usually the client or recruitment agency, so it’s understandable why contractors are uneasy about the changes ahead. However, much can be done through good communication.

Working in partnership with contractors and clients, recruitment agencies can make far more accurate IR35 determinations and, in the process, build trust. Contractors want to know that you’re working with them, not against them.

Don’t just use CEST

If you’ve heard of HMRC’s CEST (Check Employment Status for Tax) tool then it’s likely that you’ve also heard about its major flaws. The digital tool, which stands for Check Employment Status for Tax, was designed by HMRC to help contractors determine their employment status on specific projects and determine whether they fall inside or outside of the IR35 rules. The trouble is, it’s not very accurate – it’s too reductive and it omits some pretty important factors.

Almost all experts have criticised the tool, stating that it isn’t fit for purpose, and it sounds like HMRC agrees to some extent, seeing as it overhauled the tool and launched an enhanced version of CEST – which certainly isn’t as ‘improved’ as it should be. Even then, though, it’s worth knowing that you don’t just have to rely on CEST. Independent assessments are valid too, and they’re far more accurate as they look at contracts on a case-by-case basis.

Educate yourself about IR35

IR35 legislation is complex, but there is guidance available to help you navigate the upcoming reforms. In the case of the public sector, many organisations struggled with the rule changes as they hadn’t educated themselves about what was to come and did little by way of preparation.

Worryingly, a recent poll carried out by payroll software and HR solutions company MHR found that three-quarters of UK organisations are not ready for the private sector IR35 reform either. However, there is still time. To find out more about IR35, read our comprehensive guides and advice on how to prepare. If you start the process now, it’ll lessen the workload when the reform comes into effect in the next few months.

Consult an IR35 specialist for tailored guidance

Don’t let confusion over your contractors’ IR35 status stand in the way of your business, and don’t be tempted to take the risk-averse stance and place all your contractors inside of the rules to protect your own liability. This is a short-sighted approach and, contrary to popular belief, this is non-compliant too.

Instead, protect your recruitment business and work with an IR35 specialist to educate you fully about the IR35 reforms and look at the contracts you’re drawing up to ensure they’re compliant with the rules.