Home / Blog
How to keep your off-payroll workers outside the new IR35 provisions
5 November 19 | By: Jas Jhooty
The April 2020 deadline date for engagers to carry out the required status Determination Statements (SDS) on their off-payroll contractor population is looming. In this article we detail how to maximise the number of your contractors who can remain outside of the new IR35 provisions.
HMRC have estimated that only 30% of the current off-payroll contractor population will be deemed to be inside IR35. To get anywhere near this target you will have to change your contracts and working conditions.
Main employment status factors
There are four main employment status factors that will affect the eventual SDS:
1. Control -Does the client have supervision, direction, and control over the contractor? Is the contractor dictated as to how they undertake the work and how do they go about it?
2. Substitution -Is the contractor able to send a substitute to carry out the work?
3. Mutuality of obligation -Does the client have to provide work, and is the contractor obliged to accept and complete the work?
4. Financial risk -Will the contractor incur personal financial risk as a result of the performance of the work duties?
To make it more likely that your contractors will remain outside of the new IR35 provisions you will have to bolster their position in respect of the above factors. Suggested changes include:
You will almost certainly have to add more definitions to your standard substitution clauses. You should stipulate that the contractor is responsible for both sourcing and paying the substitute. The contract should state that the engager has to accept a suitably qualified substitute. Don’t forget to remove any references that the engager has the right to interview a substitute.
Try to find one instance where a substitution has actually been allowed to happen so that it can argued that this is not a sham clause
To minimise a Mutuality of Obligation arising you should be drawing up new contracts relating to each stage of a project and each stage should last no longer than 6 months. A statement of work/set of deliverables needs to be defined in each contract schedule. Workers must stick to the contract schedule and not agree to do any work outside of what has been defined in the contract schedule
Maximum number of days/hours
To increase your off-payroll worker’s degree of financial risk you should be defining the maximum period in which the contractor has to deliver the agreed services by. After this period stipulate a reduced penalty rate e.g. 50% of the normal rate. This change will differentiate the worker from an employee who do not suffer a 50% reduction in their earnings for failing to meet a deadline
To safeguard yourselves even further, do not re-engage the same contractor for the next stage of a project. Having the contractor fend for themselves for a period of time, will negate any possibility of a Mutuality of Obligation having arisen. Similarly, do not have any exclusivity conditions in the contracts. Ensure that the contractor can be allowed to work for multiple clients in the same period.
Part and parcel
Make sure the contractor is perceived not to be part of your organisation. Do not give them any equipment, they must provide their own (unless they have to use your equipment for IT security purposes).
An easy implementation to differentiate the contractor from an employee is to provide them with a different coloured lanyard than a member of staff. Also make sure the contractor has no staff management responsibilities and do not invite them to any staff functions. Ensure that you do not provide your contractors with any benefits-in-kind whatsoever and do not provide them with any training (except for necessary Health & Safety training).
As far as possible you should be moving to allow your contractors to deliver the services off-site and in their own time. You should also change the focus from a day rate to an agreed fee for the completion of a set of deliverables/project. Monthly retainers drawing down on this total fee can be agreed in the contract. Remove any references to a minimum number of hours that you expect to be delivered.
How emTax can help
- We can provide affordable consultancy to assist you in preparing for IR35 reforms
- We have prepared a due diligence checklist to identify any PSCs that may be hidden in your supplier list
- We have written a chain of communication emails to be sent to contractors advising them of the changes & how to prepare for them
- We can advise you on how to change your contracts and working conditions to keep as many contractors outside of IR35 as possible
- We can undertake financial modelling to minimise your increased overheads for any contractors deemed to fall inside IR35.
If you are interested in any of our services, please do not hesitate to contact us.