IR35: Why the reform represents an opportunity

Dean Cordingley | 26 March 2021

Utter the phrase ‘IR35’ in any organisation and you’re sure to get a mixed response. It has and will continue to divide opinion and cause confusion. However, savvy businesses that recognise that this can represent an opportunity for them to review their talent strategy and better engage with their interim workforce will be in a far stronger position than those that play it safe.

I’m well aware that the words ‘IR35’ and ‘opportunity’ are not often grouped together, so let me share some of my thoughts on why they should.

What can we learn from the public sector?
At NSCG, we work with many public sector organisations including local authorities, higher education, NHS and central government organisations, supplying interim resources in various forms across a multitude of specialist disciplines on both an inside and outside IR35 basis. We have first-hand experience of living through this change once already, when it landed for public sector organisations in 2017, and have therefore witnessed some of the mistakes made as well as what opportunities this has since created.

Private sector organisations have a real opportunity to learn from the public sector (yes, really!) and use them as guinea pigs. Here’s a look at some of the things we can learn:

As with most things, knowledge and education are key. Many public sector organisations didn’t take the time or, to be fair to them, have the resources to understand the reform change and suffered the consequences. My advice is, if you haven’t already, to review your talent strategy and implement a clear and measured one taking the changes into account. Speaking from experience, those that approach it in this way will gain an advantage over those that don’t. This includes engaging with your supply chain – service providers and interims themselves.

Many public sector organisations made this mistake as it was seen as the easiest and risk-averse approach – to essentially stop engaging non-payroll workers entirely. What resulted was a drain of valuable talent as many highly skilled workers (who were unfairly deemed Inside IR35 and carried the burden of increased costs) voted with their feet and moved to organisations where they were valued and could add value – you would too, right?
Recently, HMRC has made it clear that blanket determinations are now considered non-compliant and that ‘reasonable care’ must be taken for each individual assignment. To help assess, HMRC’s own online CEST tool is far better than it once was and there are plenty of other third parties and tools you can choose from.

The public sector has matured and, over recent years, have set up formal contracts and frameworks to drive better supplier relationships that in-turn has resulted in an improved partnership and outcomes-based engagements. This has been, in part, a response to IR35 and recognising the opportunity this has created to engage service providers and interims in a more effective way. If they can get their house in order, then so can everyone else.

‘Opportunities’ you say?
With a new business landscape to adjust to, the need for agility in the workforce is greater than ever before. Businesses with a blended workforce, made up of both permanent employees and supplemented by a flexible workforce, will undoubtedly gain an advantage.

Those that approach IR35 appropriately and continue to engage genuine interims outside IR35 will allow themselves the opportunity drive better engagement and usage to build a more efficient and robust workforce. Here’s how…

Contractual engagements that shift towards a B2B basis and away from an employer/employee relationship will enable better defined outcomes-focused services. From experience, we know that the better-defined assignment results in better outcomes. The first question you should ask is ‘What needs to be delivered, what is the success criteria, and what does good/great look like?’ – rather than what skill/people/teams are needed.

With improved and better-defined engagements comes a significant increase in accountability and reporting. This provides businesses with an opportunity to increase the delivery performance of its workforce through management information and quantifying return on investment.

Traditional time and materials-based contracts will undoubtedly continue but with better-defined assignments, different pricing models should be considered. Agreements that are based on a fixed-price or paid-on-outcome, including but not limited to Statement of Work contracts, automatically increases the financial liability on the service provider and shares the risk of delivery. What’s not to like?

Genuine interims have always offered unrivalled flexibility and agility. This has perhaps become even more important given both the challenges and the opportunities for new operating models presented by the pandemic. Interims come in different forms and a full-time resource that’s required to be on-site every day might not be the best or most cost-effective solution to delivering a project, specific task or helping to solve a problem.

By approaching and assessing the IR35 status of each assignment fairly, businesses will be able to retain and attract the best independent workers. Those that don’t, will lose out. This does also include those that see the Fixed-term Contract as the silver bullet here, they are most definitely not!

Ultimately, the changes set the foundations of the evolution of the workforce including the gig and freelance economy, performance-based engagements, self-provision and fulfilment. Add to this, the increase in businesses seeking flexibility and access to expertise in short bursts and those that continue to operate with a blended workforce will put themselves in prime position to thrive.

If not already, it’s time to start looking at IR35 differently.

Dean Cordingley is a director in our housing practice at NSCG. If you wish to discuss how to engage top talent to enable your business to realise its potential, please get in touch.

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