Government guidance on contractors and IR35 – potential implications

We’re coming back today to the government Policy Note on use of contractors (“contingent labour”) issued recently. We explained its contents and the key issue of IR35 here in our first post, then the additional clarification we got from government here.

Today I wanted to look at some of the potential implications of this, aside from the obvious risks to contractors that we discussed last time. Here are some other thoughts.

1. Public sector organisations may look to employ more people directly into the roles currently taken by contractors. But there is a fundamental problem here – for some roles and in some areas, you can’t get permanent staff on standard civil service terms and salaries who can actually do the required job. Or there are headcount restriction that mean you just can’t employ people directly anyway.

2. Departments may think they’re OK for assignments under six months in length and focus on that because they don’t have to report those engagement to Cabinet Office and Treasury. But contractors beware! See my last post. However, some contractors may decide to take the risk - but will they look for a premium to offset that?

3. How will public bodies respond if this really does bite? They may use shorter-term assignments more often. But in some key areas, like IT, you need that continuity. So I can see more fixed-term contracts being offered, that will be employment but maybe without the full pension benefits etc. But they will show up as headcount, so there are some negatives for organisations around that.

4. Or if the individuals can't be employees of the public body, they could be employees of the service companies (Capita, Commensura, Matrix etc.) who already act as intermediaries. But that requires a very different business model from them, and takes away the benefits of having your own company for the contractor.

5.  So this could turn out to be good news for outsourcing and consultancy service providers. Moving difficult task areas out either packaged up as consulting assignments, or fully outsourced, obviously gets round the problem.

6. It could also be good news for the providers of VMS solutions - the firms like IQ Navigator, Fieldglass, Beeline and so on who provide software and solutions to help organizations better manage their estate of interim / contingent labour. I suspect that is something a lot of people, public and private sector, will need to do better in the future.

First Voice

  1. Owen Inglis Humphrey:

    The key step that seems to be eluding many is the shift to Services. All to often we think about hiring people, individuals who will sit at a desk for a certain number of hours each day and for a certain number of days. Instead buyers and suppliers need to think far more about what the service is or what the outcome of the service needs to be.

    We can still use the cost per day multiplied by the number of days as a way of working out projected costs but the change in thinking enables many things not least avoidance of the questions being posed above. If you are buying a service, with a pre-defined output then the individuals involved in delivering that service shouldn’t be part of a department’s headcount nor should they (in my humble opinion so don’t take as gospel truth) be caught up in IR35.

    Changing from people to services is not new, nor does it only favor the big boys but it does require thinking – what do I need and what do I want to get at the end.

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