The controversial reform concerning IR35, off-payroll working rules, has now come into effect. Here is what HR needs to know.  

The reform to off-payroll working rules, also known as IR35, is likely to have a major impact on the way contractors are hired by businesses.

Historically, for contractors who were hired by clients in the private sector, it was their intermediary’s responsibility – normally, the worker’s own personal service company – who decided their employment status based on each contract.

However, due to the reform that has now been implemented, medium and large-sized private sector clients are now responsible for determining the employment status of the worker or contractor.

This reform was put into place to ensure that contractors were not utilising intermediaries in order to evade paying the same level of Income Tax and National Insurance Contributions that they would if they were hired directly by the client.

This change was controversial as, due to the shift in responsibilities, many companies stated they would no longer be using contractors to avoid making this decision.

In addition, many companies also failed to prepare for this reform with over half of contractors (57 per cent) saying they had not yet heard back from their end-client in January of this year.

Seb Maley, CEO of Qdos, commented on the reform, which has led to fears over the future of contracting:

The introduction of IR35 reform is a historic moment. It marks the culmination of years of the government chipping away at contractors, who have shown tremendous resilience and a determination to continue working this way.

Matt Fryer, Head of Legal Services at Brookson Legal, also stated that businesses must take a “new approach” to contingent workforce management:

As IR35 becomes the norm, businesses need to take a completely new approach to contingent workforce management.

Processes need to be embedded throughout the company to ensure continuity, including undertaking a fair and accurate employment status test, managing the process of any challenges to status determinations, contract migration and recruitment. It is also vital to maintain visibility of the temporary workforce and control of risk throughout the supply chain.

With the economy gearing up for recovery from the pandemic, not having an appropriate IR35 solution in place is a real risk in terms of attracting and retaining a highly-talented flexible workforce.

Speaking to HRreview, Simon Parsons, Director of UK Compliance Strategies at SD Worx, encouraged businesses to have a clear understanding of what the reform means to their firm specifically and plan around this.

Simon Parsons said:

Having a clear understanding of the requirements, evaluating what this means for the business, assessing current and future processes, and planning for the future will place HR teams in a strong position to adapt to the coming change. As the saying goes, it’s better late than never.