IR35 in Public Sector – What are you going to do?… Now!

IR35 in Public Sector – What are you going to do?… Now!

If the title of this article made you want to read it, then I am not going to bore you with an explanation of the current changes that are impacting the Public Sector with regards to the IR35 reform. There are many great articles that will go into the detail of the legislation, its history, its goal etc…

Neither will I discuss the frustrations that surround the complete lack of understanding, the arguments for and against or the perceived impact on how this iteration of IR35 could potentially strangle the Public Sector, negatively impact countless numbers of PSC’s and place a burden of risk and financial taxation responsibility on many recruitment companies in the UK.

There are great information sources within bodies such as Professional Contractors Groups and publications such as the Recruiter, equally there are a number of petitions to challenge delay or even scrap the changes due on April 6th

I do believe there is still a chance of changing the impact of this legislation and that continued lobbying, if not as a delay tactic, is likely to increase the likelihood of a “soft landing” ……. however with April 6th 5 weeks away we all need to be making decisions and taking actions now.

Here comes the caveat – the following are my opinions, they are actions that I believe in, am happy to stand behind and it is the advice I will be sharing with my clients and partners….

If we assume the legislation, assessment and enforcement arrive in line with the implied government proposal then for those still undecided the following is a potential course to follow.

We have our first glimpse of the IR35 Employment status tool, please note it is a Beta and therefore still open to change and amendment.

The core principles from the initial IR35 legislation from a decade and a half ago still remain, namely the IN or OUT decision comes down to 2 key factors; the right of Substitution and the engagement style around Supervision, Direction and Control (S/D/C). The tool clearly backs this up.

Therefore first question to ask yourself is in regards to Substitution:

a) Do I have a contract for services that includes a clear and concise right of Substitution?
b) Are the clauses detailed in the contract with the agency, reflective in the contract with the Public Sector end client?
c) Is the end client aware of Substitution and prepared to engage and discuss this?

Not having c) is something we can come back to. Not having a) or b) would under the implied government proposal have a clear decision for falling inside-IR35

Second question is in regards to Supervision, Direction and Control (S/D/C).
a) There must be a clear scope of work, ideally working from a client project overview, but critically the PSC must define what they will deliver, how and when. Do you have this?
b) If there is a need to deviate from the core project, then this must be entered into as a new project, with a new contract and joint agreement to the change. Have you or can you exercise this?
c) The PSC must lead on deciding how the work is done, not necessarily dictate, but can the PSC clearly and in conjunction with the client and agency, state that the PSC takes the lead on this?
d) Are your working hours/days dictated to you or your choice?
e) Are you able to determine your working location, or at least have some flexibility?
f) Critically, are you prepared to accept that unsatisfactory work will be corrected by the PSC outside of core hours at NO additional cost to the client?
g) Can you confirm you receive no benefits in line with staff of the end client?
h) Can you confirm that you carry out no “people” line management duties?
i) Can you confirm that you interact with 3rd parties of the end client (not staff) and would always identify yourself as an independent PSC?

There is a lot to take in here, and confirmation in the affirmative is required at circa 90% to be clear that you are out-with IR35

So what should a PSC/Agency/Public Sector body do?

As mentioned at the start, debating the legitimacy of the legislation (final details still to be published) is not my goal. Let’s just accept that it is going to be here in 5 weeks and it is going to follow the implied government goals.

Then there are some tough, but informed decisions to make. If the PSC has no right of Substitution and is clearly unable to exercise control in regards to S/D/C because of the nature of the work that is offered. Then the implied outcomes is that such PSC companies will fall within IR35.
This means the PSC must consider their engagement style now.
The Agency in conjunction with the PSC must propose a compliant option that covers the NIc liability
The PSC, Agency and End Client must have a meaningful conversation about moving forward:
• Can the end client look to reconsider how the PSC engages?
• Is there room in a budget to off-set some cost implications?
• Is the PSC prepared to convert and continue working in one of the PAYE, Umbrella or Payroll solutions?

No easy win here, it will involve a reduction in income.

In my experience I have seen PSC companies that are maybe questionable; they either don’t seem to fit the unique and specialist skills, or look like they have been forced into existence, purely for financial efficiencies. As mentioned the ethics are not the topic of this article nor is the inadequacies of IR35 legislation over the last decade and a half.

However what no-one can deny is that the growth of PSC’s, offering high-quality niche skills, to enable companies (and public sector organisations) to complete cutting edge projects, realise time sensitive deliveries, achieve unique one off projects, has been incredibly beneficial and has become an integral part of the UK work place.

I believe the government’s assertation that something in the region of 80% of PSC’s are acting incorrectly is ludicrous. What may be true is that a lack of clarity, enforcement and instruction around IR35 from day one, means that many PSC’s, end clients and Recruitment partners, have been remiss in effectively and accurately representing the service offered, the rules of engagement and the contractual parity.

So let’s deal with this, now.
All parties should sit around the table and discuss:
1) Substitution. I could guarantee that it exists in 90% of all contracts, I would guess it is reflective in at least 75% of all cases. But if asked tomorrow would a client allow it. I am guessing that many would say no, and most of these would be because of a lack of understanding. So explain to them that in reality it is unlikely to be invoked. If it were the PSC would never present a substitute that could not deliver the work. Remind the client that the PSC is still liable for the delivery and responsible for remedial work should the end client not be satisfactory. Do clarify that with the project already assigned to the PSC there is no need for a formal interview, a comfort meeting would be recommended, but for the above reason, it is the PSC that would be responsible for any unsatisfactory work completed by the Substitute
2) Supervision, Direction and Control. If you are a genuine specialist PSC then likelihood is that the expertise you bring does not exist with the end client, or is in such a scarcity that end clients who share your expertise, will not have the time to supervise your work. So once again if all parties sit down and discuss S/D/C I do not believe that there is a leap of faith between the PSC demonstrating genuine ownership (with some collaboration) on how they work, when they work and where they work. Equally, involvement with other client lead reward, influencing people management or reward & remuneration of End Client staff is an easy side-step that should not be on the PSC’s agenda.

I genuinely believe that a very high percentage of PSC operate beyond the remit of IR35. I equally believe that, as in the examples above a lack of clarity and understanding is the biggest risk that must be overcome.
It must be addressed now. PSC’s, their agent and end client must enter into a dialogue to explore and ensure a mutual understanding. If not, there will be more “knee jerk” reaction like that at TFL, uninformed protectionism that will put the Public Sector into a downward spiral brain drain.

I am struggling with a proper way to articulate this call to action. I am not really saying use the tool to work backwards. I am not saying look for a way around the IR35 triggers. What I am trying to say is if the PSC is providing a specialist service, then the three relevant parties need to sit down and explore this.
• The Public Sector needs to acknowledge that if they want the specialist skills of a PSC then, they must recognise and accept Substitution in its purest form, they must recognise that if you require a specialist then give them the remit, and let them tell you how, when and where they will deliver the service.
• The PSC must accept if you want to be recognised as a truly independent company, then you will need to stand alone, direct your own work and critically accept that you are answerable for the work getting done, correctly and in a timely and efficient manner, taking responsibility for fixing anything that is not deemed satisfactory
• The Agency (or fee payer) must take an active part in all of the above, be the facilitator that explains and educates all parties.

Oh yeah and do all the above now……