In April 2021, the UK Government extended the off-payroll working (IR35) rules to the private sector; now affecting any medium and large organisations looking to take on an interim manager operating through their own limited company. The changes created increased financial burden for companies looking to take on contractors. However, interim managers provide a level of expertise, knowledge, and experience that most companies cannot afford to lose. Understanding how to keep this talent will be vital to maintaining a competitive advantage. Our Executive Interim expert, Paul Duffy spoke to IR35 expert Dave Chaplin, founder and CEO of IR35 Shield, to find out what impact the new rules have had one year on.
Since the changes were implemented in 2021, what impact has IR35 had on the interims market?
Some companies took extreme reactions to the reform, and a number of large organisations took contractors completely off their workforce. There were also several high-profile cases of IR35 breaches in the news. As we approached 2021, many firms simply weren’t ready for the new changes – they were busy dealing with the challenges of the pandemic and didn’t have the chance to put new systems in place.
The supply and demand curve for contractors became completely skewed. With all the uncertainty of COVID-19 and increased redundancies, contractors were the first people to be put on the bench. Everyone was looking for work and people had to take what they could get. Rates temporarily went down, and many people were happy to go on payroll.
However, over the past 12 months, we’ve seen more certainty in the market and firms are starting to find it more difficult to get the talent they need. Many companies have realised that they cannot have a blanket ban policy on hiring contractors if they want to maintain a competitive position in the market. If they can’t get the expertise they need on payroll, firms are having to reconsider hiring contractors for specialist work.
Interims can offer unique expertise and experience that most companies cannot afford to lose – how can large companies keep this talent?
If employers can implement a solid, robust IR35 regime, they can get access to the talent they need at the best rates and out-compete their rivals. They need to take an evidence-based approach to build themselves defendable positions and get things right in case HMRC comes knocking. However, if you can get it right, it puts you ahead of everyone else and you can secure the top people.
The other option, if you don’t want to take any risk, is to pay more money to get the people you want. Some companies may choose to hire contractors on fixed term contracts or agency payroll. You can do that, but it can get very costly if you have to take additional expenses such as full employment costs, employee benefits, paid holidays, travel and accommodation into account.
What are the opportunities and implications for interims?
Interim managers may have suffered more than other contactors because the work they do isn’t necessarily output based, it’s more like taking on a specific role for a short period of time. For example, the phrase ‘interim manager’ sounds more like an employment and makes it more difficult to secure a contract outside IR35.
Nevertheless, there will still be a vibrant market for contractors – it’s just a case of whether you can secure a contract, where it’s on or off payroll, and whether you are comfortable with the terms and the rates. In the early stages of the changes, contract rates weren’t good, but the market is re-balancing and rates are bouncing back. For the contractors who are left, rates have increased by about one third.
There are also opportunities abroad. If you work for a firm that’s wholly offshore, you don’t have to worry about the new rules because the old rules still apply. There are also firms in the UK who don’t want to hire UK contractors but are hiring contractors from overseas. Remote working has opened more options for international talent mobility.
How can people function as interim managers in the pharmaceutical industry without being caught out by IR35?
Everything needs to be evaluated on a case-by-case basis. As cases are evolving through the courts, there is an argument about being in business on your own account. If interim managers are offering the same or similar services to several clients at the same time, then that could potentially be categorised as being in business on one’s own account, and could qualify as outside IR35.
Alternatively, if a small firm is providing fully contracted-out services on a consultancy basis then that would fall into the small companies’ exemption. In theory, a group of very senior interims could set up their own consultancy. However, it can’t just be people and labour – it has to be consulting services where the client doesn’t mind who goes in. This is typically done in IT, but it could possibly be done in interim management.
It really depends on what the interims are being hired to do. Are they coming in to do a transformation project or are they just coming in to take over for a certain period? If there’s a pre-defined task that they are coming in to complete within a set time frame and they don’t go out of pre-agreed scope, then that’s genuine contracting territory.
The RSA Group is proactively helping our clients to navigate IR35 changes. Contact our Executive Interims Expert, Paul Duffy to find out more.