Employment or Self-employment? Procurement Needs to Understand Tax Issues

Amazon business

The world of contingent labour is getting more and more complicated, with increasing options for organisations that want to engage non-permanent staff – whether they call them interims, contractors, independent service providers ... or whatever.

There are an increasing number of electronic platforms and marketplaces that help organisations engage individuals on a short-term basis to carry out certain work. There are many positives connected with this development; it can produce a boost to economies, and actually allows some groups of people who might otherwise struggle to be employed to do something useful and profitable (e.g. IT coders, or writers, who can work from home but might be physically disabled).

However, this growing type of employment is bad news for governments, who fear the loss of tax revenues, as income is not taxed at source which it tends to be when workers are fully employed by an organisation. Even if people do act properly and declare all their income, the cost of managing the process and collecting the tax is going to be higher than with the direct method.

So governments are talking various steps to try and address this concern, often by tightening up the rules that define “self employment” as opposed to “employment”. There is a very useful article here written by Kevin Barrow, a partner at law firm Osborne Clarke, in which he discusses these issues and proposes some ways forward in terms of the whole issue.

But it is not only an issue for the individuals concerned. The platforms or exchanges are in the firing line too; as Barrow says;

Arguments by online exchanges via which people offer personal services that they are "nothing more than a neutral technological platform" and should not be subject to normal tax, employment or recruitment laws have so far tended often (but not always) to fall on deaf ears in the US and UK.”

So why should procurement people be concerned about this? Well, contingent labour in its various forms has been one of the fastest growing spend categories in many organisations over the last decade, and the growth shows no sign of abating. Responsibility for this whole area is often shared between HR and procurement; indeed, that highlights some of the issues in itself. Are we talking about “staff” or “suppliers” here?

It looks to us like this spend is within the scope of third party or “procurement addressable spend”, so in our view procurement does need to keep an eye on what is happening here. That means both understanding the market for such tools (the platforms and exchanges) and also understanding the legal framework within which we are going to need to work as we engage with the contingent labour market.

Much more to come on this topic, we suspect ...

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