Reform to IR35 legislation, which came into force in April 2017 for the public sector, passed the responsibility for determining the tax status of all personal service company (PSC) interim workers to the hiring organisation, including potential liability for tax and national insurance contributions.
As public sector employers were only given four months from publication of the draft legislation to its implementation (5 December 2016 to 6 April 2017), those affected wrestled with grasping both the detail of the changes and the impact of a distorted market.
The private sector was not yet subject to the changes, which meant organisations in the public sector that were unable to successfully implement the reform struggled to attract and retain their contractor workforce. No doubt these businesses were feeling the full impact on costs, leading to further budgetary challenges in an already difficult financial situation.
One way some organisations chose to respond to the reforms was to undertake blanket in-scope determinations of their entire PSC workforce. However, this runs the risk of losing interim talent to the private sector as well as to businesses in the public sector that have implemented effective working practices.
So, it was with baited breath that public sector recruiters and hirers waited for the autumn budget announcement, where a date for when the IR35 reforms would be extended to the private sector was expected to be confirmed.
Competing for talent
It was confirmed that IR35 reforms will be extended to large and medium-sized organisations in the private sector from April 2020. So, the distorted market will continue to prevail until then.
Public sector organisations that have yet to effectively implement the reforms should not wait any longer. Given widespread skills shortages, now is the time to grasp the nettle and change the way you seek and engage interim talent.
Fighting the challenge
Reform to IR35 does not necessarily need to fundamentally change the way public sector organisations utilise interim workers. The key is to take the time to think about how you 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.
So, what effective approaches have public sector organisations implemented to manage the reforms? They have;
1. Worked very closely with executive teams to ensure they understand the reforms and how PSC contractors can still be used while complying with the rules as set out by HMRC
2. Understood the demand for interim role types and business critical skillsets, and they have assessed the cost and delivery impact on these skillsets of not effectively implementing the reform
3. Reviewed working practices to allow contractors the freedom to perform their services, thus getting the best outcomes from their contractor workforce
4. Carried out tests on an assignment by assignment basis – either using the HMRC test or an external expert IR35 testing service such as the service Hays provides
5. Worked with hiring managers to understand the core factors that drive the tax treatment and adopted best practices, where it was appropriate, to maximise effective service delivery
6. Partnered with recruitment specialists that understand the legislation and are helping them to navigate these issues
“With less than 4 months to implement the government’s IR35 policy, TfL had to move swiftly to communicate the changes to our workforce of over 1,600 Limited Company agency workers. We partnered with Hays as our Master Service Provider to analyse the data for critical business roles and successfully implement an independent online tax testing service before the deadline – this service gave us credibility with our Head of Tax, Legal and business managers”. – Clive Mills, Recruitment and Redeployment Manager, TfL
Counter the competition
Many public sector organisations understandably struggle, in the face of competing priorities, to find the expertise and resources required to address these issues. Meanwhile, specialist recruiters have successfully implemented tax and legislation change over many years, and therefore often have the in-house experience and expertise to help employers effectively manage the implementation and comply with the rules. An opportunity to work much more closely with your recruitment partners has been created to overcome these challenges, while continuing to attract and retain the best talent.
Occasional users of interim contractors that struggle to understand the details of the reforms should look to recruiters that can support with expert insights and testing services, taking time and risk out of the process. Organisations that rely on high volumes of contingent workers should instead consider a Managed Service Programme (MSP). A MSP can help to implement robust processes and working practices alongside creating much greater visibility across the flexible workforce.
Public sector organisations that have already updated their hiring practices in light of the legislation changes are able to access a much wider talent pool that would otherwise work in the private sector. As the risk has been effectively managed, this leads to a considerably faster time to hire. Ultimately, these organisations are able to engage with their contractors more cost effectively compared to their peers that continue to get to grips with the reforms.
The expertise and appetite does exist to help the public sector continue to access talent, allowing them to more effectively deliver their services and ultimately to save money - just talk to your specialist recruiters and they will be delighted to help.
For further information about the issues and opportunities raised by IR35, stay informed with our whitepaper and webinars or alternatively please contact your local recruitment expert.
About this author
Matt Lewis, Director Hays Public Services, has worked in specialist recruitment since 1994, the last 10 years of which have been spent working specifically with the public sector. Matt’s role has developed into leading MSP and RPO recruitment solutions to best position organisations to attract and retain high quality talent.