Recruitment business owners: are you ready? Here's a glimpse into the future of IR35
In less than eight weeks, the new rules will come into force as part of the IR35 extension into the private sector. By now, you would already be familiar and have prepared your business (and your contractors) of the changes to come.
As with changes due to Brexit, GDPR and HMRC, the real question to ask is this: what will the state of recruitment look like? & how will it affect my business strategy for the rest of 2020?
Read on to get a glimpse into the future of IR35 and access for yourself the direct (and indirect) financial impact of the market for your business.
Reduced pool of contractors
When asked what their biggest fear was, a third of UK businesses said losing their contractor workforce. As much as this is feared, it is only a matter of time before this becomes a reality. Here’s why:
- Contractors trade employment rights in exchange for money but IR35 decreases their earning potential (up to a 25% reduction in net income) making contracting jobs less appealing.
- Recruitment companies potentially applying ‘blanket determinations’ classifying contractors as ‘inside IR35’ to avoid liabilities
- Similarly, contractors joining Umbrella companies instead of keeping their limited companies or switching to Permanent roles driven by fear and uncertainty.
Rising pay rates for Contractors
In theory, with a smaller pool of Contract talent, agencies (or organisations) will have to pay an increase to offset NICs. However, if agencies choose not to offer an increase pay rates, contractors will have to be the ones burdening the cost.
Ultimately, this is very much dictated by organisational budgets and begs the question if large organisations care enough to pay the extra.
Longer time-to-fill = lower placement rates?
Since that now the efforts for collecting and managing tax & NICs are pushed back up the supply chain, agencies have increased responsibilities and administration challenges to tackle.
This will have a direct impact placement rates and time to hire, especially so in a couple months time while still in the early stages of reform. It could take longer for a job to be advertised, sourced and filled by agencies in light of talent shortages, compounded by compliance with IR35 and negotiations with clients.
More competition for permanent jobs
New IR35 rules are predicted to create more Permanent jobs on the market as risk averse clients may prefer fixed terms contracts and perm roles instead. This means more choice for job seekers in the market but more competition and increased pressure in the market for recruiters to engage job seekers.
Some industries like engineering and manufacturing may be less likely affected as these markets are more focused on perm jobs. However, for healthcare, retail and financial services, it is likely that there will be a reduced level of flexibility if hiring limited company contractors.
Rise of ‘Statement of Work’ Services
A lot of talk has surfaced with Statement of Work (SoW) as the alternative model for staying ‘outside IR35’. Why? It provides clients with more assurance on project price and output.
With expected additional costs that businesses are likely to see due to IR35, SoW is a good opportunity for recruitment agencies to offer premium services to their current client base.
However, it’s important to understand what an actual SoW is - a truly contracted out service for which IR34 rules do not apply. SoW provides an avenue for additional income but it also means extra responsibilities, surrounding compliance issues, time and admin.
This blog was provided by TRN Gold Partner Vincere. To find out more about Vincere then please click here.