I wrote recently about the issues facing lenders building their own digital eco-system but another eco-system is now hitting the headlines for all the wrong reasons – that of contractors.

Contractors are self-employed individuals who play a crucial role in this ecosystem and while the blanket approach of financial institutions to IR35 may appear to be a reasonable risk mitigation exercise, the decision may well have severe consequences when it comes to attracting future talent.

The advantages of flexibility and insight, which contractors bring, are important as is their contribution to operational efficiency and productivity.

Specialist expertise and experience bring fresh perspective from outside the organisation too, allowing organisations to benchmark and stay ahead of the game. While costs may appear higher at face value, the experience and savings contractors often provide in the long-run are considerable and, once the programme is delivered, the cost ceases.

The scale of the problem presented by IR35 and business’ reaction to it is clear. The ONS revealed that, since 2000, the number of contractors increased from 2.5 million to over 5 million, showing a global mega-trend towards freelance and flexible working. Businesses and individuals alike have benefitted hugely from this arrangement.

Employers in the financial sector should plan correctly for the extension of IR35 rather than risking major disruption by implementing blanket bans, and potentially restricting the growth. Every business should be ensuring that they are prepared and protected.

Examine the current workforce

The first step is understanding the scope of impact by reviewing existing workforces to determine what percentage of personnel are employed, sole traders and Professional Staffing Company contractors and where this talent sits within the business.

Blanket bans may seem like an easy option but by looking at each role on a case-by-case basis, and keeping records of decision making, business leaders will have the opportunity to retain the critical knowledge and experience of those who are genuinely self-employed while avoiding any future liability cases. The government has now stated that taking a blanket approach is failing to take reasonable care but that hasn’t dented organisations’ appetite to implement them.

Alternatives

There are alternatives and those organisations for whom contractors remain essential are leading the way. Those lenders that recognise the importance of contractors don’t often have in-house capability but they have run roles through the HMRC CEST solution to evaluate whether they are off-Payroll.

In addition, contracts now often require the contractor to indemnify the lender if a role is subsequently deemed to be off-Payroll.  If the whole industry adopted this approach business would be able to move forward more effectively.

Flexibility

Now more than ever flexible talented labour is very important in delivering much of the change organisations believe they will need.

The pandemic has meant a wholesale change in the way we view work and the way we cope with business as usual. As we emerge and begin to undertake development projects again, it is important to discuss internally whether the ongoing impact of Coronavirus will be likely to lead to more need for flexible off-payroll contractors than was originally envisaged.

Contractors are an important resource in the industry and their own eco-system impacts the development of many other new ways of doing business.

Without an appropriate and considered approach from lenders the de-stabilising effect of IR35 changes will materially impact their ability to innovate and implement important change effectively going forward.

Tim Hague is managing partner at Sagis