One week into IR35 reform and there’s an inevitable lull after the frantic activity in the lead up to the deadline. While it might be a case of no news being good news, it’s likely the real impact won’t be known for some time. What’s clear is that there was no uniform reaction from the recruitment and business arena.
In the weeks leading up to reform, a quarter of contractors reported to the IPSE that their clients were planning to blanket-assess all their contingent workers as ‘inside IR35’. One fifth (21%) would only engage contractors working through umbrella companies. Nearly one in ten contractors (8%) said their clients were planning to cease engaging contractors altogether.
While it’s too early to know if the figures accurately reflect the current state of play, they give some indication that many businesses were either confused or not fully prepared for reform. In fact, a further quarter of contractors said that with just weeks to go, their clients had made no indication of what they would do in response to the IR35 changes.
Whatever the decisions made by firms at the last hour, there’s inevitably been some swift ‘risk aversion’ from highly regulated sectors such as financial services. However, knee-jerk bans on limited company contractors or blanketing them inside IR35 doesn’t appear as rife as last year’s ‘domino effect’ in the lead up to reform.
A leading contractor website reported a surprise flurry of outside IR35 decisions just before April 6th. AstraZeneca, William Hill, Enterprise, IPG, Orsted, Brighter Consultancy, Magic Milestones, Equal Experts, MWH Treatment, Ashfield and the Co-operative Group are among those making sensible IR35 decisions based on engagement terms.
It seems to be getting through to businesses that alienating their contingent workforce isn’t the best course of action in the current climate. As national lockdown measures are eased, employers are identifying major skills shortages across many sectors. In particular, demand for IT contractors rocketed in March as businesses required technology to underpin their scheduled bounce back.
In a market where supply isn’t matching up with the sudden demand, companies can’t afford to indiscriminately ‘herd’ contingent workers into unfavourable contracts. Whether it’s the economic uncertainty created by the pandemic, or the repercussions of the UK’s departure from the European Union, 2021 is set to be a challenging year. Businesses that take a sensible approach to the changes - and continue to engage contractors - will gain a competitive advantage over their competitors with regards to attracting the best flexible talent.
Reform will inevitably mean an increase in the number of contractors working through umbrella companies to ensure compliancy. However, by prioritising fair and well-informed IR35 status decisions over short sighted bans or blanketing, many firms are demonstrating that they can also work compliantly with contractors outside IR35. It will take time for the first case law decisions on the changes to emerge. Until then, expert opinion seems to be that IR35 reform will neither end the contacting sector, nor present an unworkable obstacle in the long term.