The proposed implementation of IR35 in April is receiving widespread criticism.
We’ve seen accusations of a lack of time to prepare for its roll-out to the private sector, as well as the potentially drastic impacts which the new law could have on the UK’s workforce of contractors.
But aside from the complexities of changing responsibility for engagement classification, is an issue which I believe goes straight to the heart of significant confusion over employment status.
That’s what constitutes a worker, and how we define being self-employed. The roll-out of IR35 threatens to bring this into sharp focus.
The fact is that, even within the HR profession there can be misunderstanding of what ‘worker’ status is. In reality, many thousands of self-employed contractors, in the event of a review, would be found, in ignorance, to actually have worker status.
So a key strategic challenge for those in HR, once IR35 starts affecting the private sector, will be the wider implications of the roll-out. This might seem to be a tax issue but it is likely to have far reaching and wider implications – on employment status claims and with potentially crippling costs as a result.
Many have already pointed out that the Government’s review, which won’t be complete until mid-February, leaves scant time for businesses to prepare before the hitherto unchanged roll-out date in April.
Critically, it is in the interests of all businesses – and this is something The HR Dept has been advocating for a while – for there to be an urgent and fundamental review of employment status, as the Government committed to in its ‘Good Work Plan’.
What business desperately needs, even without this looming issue of IR35, is alignment between tax and employment laws. Only then should any reviews or changes in tax legislation be implemented, once we have a more robust foundation of categorising employment statuses.
Because for companies which determine that a self-employed limited contractor should be placed ‘inside’ IR35, there could be problems, even setting aside the administrative burden of taxing the contractor at source.
Any contractor assessed on this basis, who has previously been working without the benefits associated with employment, may well then bring a claim against their employer at tribunal.
They could have a right to claim to have been a historic ‘worker’ or an ‘employee’ – both of which are eligible, if successful, for backdated holiday pay, auto-enrolment and other statutory benefits.
This could mean unlimited backdated claims, for as long as the contractor has been self-employed, if they are then found to have had worker or employee status.
Business owners and HR directors, in companies where self-employed limited contractors are used, must be aware of any contractors likely to be found to actually be workers or employees.
Going further, this development also exposes the wider issue of sole trader self-employed contractors, not covered by IR35 rules, but who may well be classed as ‘workers’ if found not to be truly self-employed. This will apply to all size organisations, including small businesses.
It is the definition self-employment that is at the crux of the employment status. It urgently needs addressing. Those who do not have an ‘unfettered right’ to send a substitute to carry out their work are unlikely to be truly self-employed.
Jill Bottomley is HR Director at The HR Dept – www.hrdept.co.uk