Contractors’ reactions to the controversial IR35 reforms due for roll out this April are picking up momentum as the Treasury shows no sign of listening to their concerns. The Financial Times reported that Deutsche Bank is facing a walkout by contractors in a London change management team who have been compelled by the bank to work through Resource Solutions, a recruitment-outsourcing agency, instead of through their own limited companies. The changes will result in contractors suffering a 25% pay cut. Instead of tolerating this, Deutsche's contractors are apparently planning to leave.
The bank’s particularly stringent measures are similar to those enforced by HSBC for its GB&M division, who were also told they must use the very same outsource company, Resource Solutions with an effective pay cut. Not only are contractors in these divisions being forced out of their limited companies and onto the payroll, they’re also being told that they can’t choose a payroll provider to suit their individual needs.
Outsource agencies effectively act as an extension of the company’s HR, meaning that these end clients get to extend favourable contractual terms over their contingent workers with non-negotiable terms. It’s another example of companies expecting contractors to pick up the slack in working arrangements that make them likely to be assessed inside IR35. If the end-client wants to extend its control to this extent, the decent thing would be to offer a permanent contract with full employment benefits. However, this arrangement allows the company to treat the contractor like an employee where it suits them, without making any long-term commitment.
Contractor forums are full of complaints from contractors bearing the brunt of “take it or leave it” attitudes from their end-clients. Barclays stands accused of cutting pay by 50% with non-negotiable contract terms, and it’s not just banking sector contractors who are affected. Major projects at the National Grid look under threat as 99%” of the utility firm’s off-payroll workers have had their roles reclassified as inside IR35. Although many companies are saying they’re reaching status decisions by individual assessment, the reality is that it’s a foregone conclusion to assess contractors as inside IR35.
Dozens of freelancers working at Thomas Reuters media group are also threatening to leave unless it guarantees that their rates won’t be cut. If deemed inside IR35, Reuter’s contractors say they stand to lose at least 45 per cent of their pay rate. This breaks down as twenty percent income tax, 12 per cent employees national insurance contributions and 13.8 percent employers’ national insurance contributions. They’re demanding a 35 per cent increase in their day rates to offset the extra cost of joining the payroll, or commensurate holiday pay and pension contributions.
Although end-clients have been placed in a difficult situation without adequate guidance to implement the reforms, it’s difficult to see how this heavy-handed approach won’t have serious repercussions for business. Many contractors simply can’t afford to go on the payroll, as they will have a commitment to outgoings and expenses that can’t be claimed inside IR35. In addition to the financial hit, the situation has soured the relationship between end-clients and their contactors, damaging the measure of trust needed for successful working relations.
One contractor who works for Reuters commented that workers felt humiliated by a lack of communication from management. Many contractors have felt the non-cooperative attitude of their end-client as a slight against their professional standing and perceived value. While many say they’ll look for permanent work, go offshore, or take a sabbatical rather than accept working inside IR35, it’s difficult to ascertain how many contractors will actually end up leaving the sector as a result of the reforms, or for how long.
What’s clear is the significant toll it’s taking on limited company contractors who are coping with great uncertainty about their futures. Contactor forums indicate the level of mental stress that the reforms are causing, and as the Lord’s probe hearings got underway last week, inquiry Chair Lord Forsythe revealed the investigation had already received over 300 emails from individuals asking for protection from the taxman’s April framework. He commented: “I’ve been very, very surprised by the extent which this inquiry has provoked a reaction, and that says to me that there is real pain out there.”
This content has been supplied by IR35 Guru.
If you’ve been affected by the Off-Payroll reforms, or if you’re unsure about your employment status, Umbrella Exchange has a range of options to help you keep your contracting career on track. To talk to a member of our team, call: 0203 393 3881
