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Bursting the IT contractor bubble: is your organisation legislation ready?

How IR35 is bursting the IT bubble img


It’s no secret that we are in the midst of a digital skills deficit. As traditional organisations renew their focus upon digital transformation projects and native digital companies continue to scale up operations, many organisations who don’t have the skills needed to complete digital projects have turned to contractors to plug their skills gap.

For some time now, filling IT and digital technology roles across all sectors and industries has frequently relied upon specialist contractors. However, with the introduction of updated IR35 legislation in April 2017 in the public sector and its impending application to large and medium-sized organisations in the private sector from April 2020, IT employers are being further impacted.

IR35’s impact upon the public sector

The legislation impacts interims working under a personal service company (PSC) and shifts the responsibility for determining whether a PSC employee is inside or outside of scope of IR35 legislation onto the hiring organisation. This includes liability for tax and national insurance contributions.

The small window between the finalisation of the legislation and its implementation date left many public sector organisations little time to prepare, and a lack of clarity aspects of it open to interpretation. As a result, many implemented blanket in scope determinations for all PSC workers, rather than applying the new rules on a case-by-case basis.

Such broad-brush attempts to mitigate risks impacted organisations’ costs, resources and ability to complete business critical tasks. Inevitably, many realised they should perhaps have adopted a different approach.

Lessons haven’t yet been learned

Despite the difficulties experienced in the public sector, a recent Hays survey showed that over half (57%) of private sector employers are unsure if their organisation has begun to prepare for the expected legislation changes.

Of those who have started preparing, less than half (43%) have carried out an audit of their PSC workforce, and nearly a fifth (17%) plan to apply a blanket in scope determination for all PSC workers.

Prepare now for tomorrow

This lack of preparation runs the risk of repeating the challenges faced by the public sector. So what can IT employers in the private sector do to prepare?

1. Identify your risks and engage with a recruitment expert. Audit your interim workforce to ascertain your level of risk. A recruitment expert who has supported the public sector through the original implementation date can help determine how IR35 will affect your organisation, and develop a solution if required. They will also be able to help you communicate any changes to workforce effectively.

2. Don’t have a knee-jerk reaction. You can still utilise contractors Updates to IR35 need not change the way your organisation utilises interim workers as long as you take the time sooner rather than later to prepare your strategy. This will ensure your organisation is able to access and compete for IT contractors you need to undertake change.

3. Going forward, think long-term. Think about how you will assess and arrive at a determination for each PSC assignment, and maintain control and visibility over how contractors are on-boarded and utilised going forward. If you rely heavily on contingent workers, then a Managed Service Programme (MSP) may be more beneficial, where a recruiting partner fully manages the recruitment process of contractors.

For further information about the issues and opportunities raised by IR35, download our whitepaper or alternatively please contact your local recruitment expert.

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