Last week, an interesting article caught my eye with regard the unfolding story of IR35.
The introduction ran, ‘private and public sector organisations that fail to take reasonable care when carrying out IR35 status determinations risk alienating their contractors and suffering reputational damage.’
I have already written about the perils facing businesses using contractors and the impact on crucial projects but just as Mark Twain was mistakenly misquoted as saying: “The reports of my death are greatly exaggerated.” So, it appears, is the predicted demise of consultancy.
In research last month, it was estimated that nearly two-thirds of contractors have been classified as “employed for tax purposes” since changes to the off-payroll working rules were introduced in April and while many contractors plan to challenge their classification, trends are already starting to appear that will impact the delivery of mission critical projects.
There is a growing cohort of contractors that haven’t been afraid to establish greater bargaining power with regard their working arrangements and rates and will only engage with clients who understand this.
These contractors understand their value and, more particularly its value as the economy recovers and critically important projects become non-negotiable. Contractors with niche and high-demand skills are twice as likely to find an outside-IR35 contract.
A two-track market of specialist and generalist contractors and consultants begs an important question in terms of making sure the value of an individual is clearly understood. It also favours larger budgets taking the best of the contracting talent that is available.
At moments of strategic shift or ‘gear change’, companies often turn to a more highly skilled flexible workforce. Companies adopting an approach that seeks cheaper short-term skill for long-term recovery and growth are likely to get the worst of all worlds.
One consultancy firm stated that there has been a 57% growth in demand for interim staff since this time last year as companies emerge from the pandemic, with flexible working creating even more competition for contractors across the UK.
Now I hear you observing that this is a consulting firm reporting this fact but even colloquially, I regularly hear this is the case. In reality, IR35 has created clarity of sorts for both companies and contractors. Understanding the value in the new world is where the challenge lies.
Things like systems are upgraded infrequently so there is little to be gained from doing the job poorly only to have to spend again to fix it later. Mistaking cheap for good value can sometimes mean solutions that are light on functionality, flexibility for the future, nasty surprises during the programme that come with extra cost and programme overruns that are expensive.
The demand for interim workers has skyrocketed – with no signs of slowing down, especially as, in financial services, we have yet to navigate the still-unknown impacts of issues such as Brexit.
As with most legislative change the rule of unintended consequences means that the death knell that was largely predicted for consultants may have been premature.
IR35 simply means that understanding good value is even more important when the stakes are high.
Tim Hague is managing partner of Sagis
