WARNING: What you must know about your contractors before April 2020

Earlier this year, I wrote an article about the UK Government’s consultation on the introduction of IR35 tax rules.  This is in relation to contractors in the private sector. If you use contractors in your workplace and you are a medium or large sized company, then you need to prepare for these changes.

Many employers remain unaware of these changes. If you do know about the changes, have you discussed them with your contractors? Have you agreed on their taxable status?

The Government announced in July that the consultation had finished and changes would be effective from April 2020.  Tax and National Insurance payments for contractors will become your responsibility.

It is best to avoid the blanket payment approach

These rules were brought in for the public sector back in 2017. Most public sector employers decided to tax their contractors as employees.  But they did not give those contractors the other benefits of employment. As a result of this approach, many contractors stopped working in the public sector. Public sector employers now find it much harder to attract contractors. Where they do still use contractors, they often have to pay a huge amount more than before.

What are the tests which prove whether or not a contract worker is genuinely self-employed?

Unfortunately for employers (and contractors), the only real test is in employment tribunal. There have been several high profile cases about employment status and there are likely to be more.

There is no hard-and-fast rule which shows that one person is genuinely self-employed. But there are some indicators which the Courts will consider in these cases. So it would be wise for employers to consult with their contractors about these issues.  This will help to determine how their tax should be calculated. Not all of these indicators apply to every contractor.  But they can give a guide to the true status of employment.

Some of the factors

  • Can the individual work at times and from a location to suit themselves? Or do you require them to be at a specific location, at specific times.  Do you require a set number of hours? If so, then that would indicate that you are their employer, not their client.
  •  Does the individual use their own equipment and tools? Or do you expect them to use tools and equipment which belong to your company? Again, this would indicate they are employed by you. If you are happy for them to use their own tools, this is another indication that they are not your employee.
  •  If you provide skills training, this might indicate they are considered an employee. Especially if you require them to undertake such training. A true contractor (supplier) should already be trained and skilled in what you need.  So it should not be necessary to provide any skills training for them.
  • Is there an expectation that you will continue to provide work once the specific job has been completed? Alternatively, are they expected to do work for you, other than what is specified in the contract? Or do you expect them to continue to be available for work for you once the project is done? Any of these things would suggest “mutual obligation” between you. This indicates that they are an employee.
  • What happens if they are unavailable (off sick or on holiday)? Do you allow them to provide a substitute to do the work while they are off?
  • Are your contractors free to do work for other companies at the same time as they work for you?
  • Do you provide transport, uniforms or other “employee benefits” for your contractors?  For example,  can they use a company subsidised gym or restaurant?

This is not an absolute or exact science

The answers to these questions can help you and your contractors decide on the fair way to deduct tax and National Insurance. Should it become clear that they are an employee, then you may need to offer employment terms and conditions and benefits. If you do not do so, then it is unlikely that the individual will be prepared to continue to work for you.

Your discussions  – and their answers – might indicate that they are a true contractor or “supplier of services”.   This will not guarantee that HMRC does not investigate further, of course. But your records of these discussions and their answers will help to show that you have investigated their employee status and have valid reasons for your decision.

Discussions sooner rather than later

If you want to avoid last minute decisions about the status of your contractors, then you need to start these consultations now. Otherwise you might face significant disruption and loss of talent at the last minute. Many public sector organisations are still facing skills shortages. Some are finding it hard to attract and retain contract workers.

The Government has developed a tool to help businesses to decide on the tax status of their employees. There has been some criticism of this Check Employment Status For Tax tool, but it may help employers and their contractors to make an informed decision.

If you think this article is useful and you would like to know more,  please join our mailing list, or contact us for further guidance.

The Facts You Should Know About IR35 Tax Rules and Your Contract Workers

If you have had difficulty in recruiting skilled staff to undertake specific projects, then you may  have turned to the contract world.  In some industries the way to ease recruitment has been to use contract workers.  This is particularly the case in the IT world.  Technology changes fast and it is difficult and costly to keep trained employees.

I have worked in Human Resources in both the public sector and private sector for some years. So I know the difficulties employers face when it comes to recruiting technologically adept staff.

IR35 Tax Rules are coming to your contractor workers soon

The UK government is currently consulting on the intention to introduce IR35 tax rules to the private sector from April 2020.   These rules have applied in the public sector from 2017.  But many private sector employers are unaware of the rules or the implications for their business.

In a nutshell, the proposal is that private sector employers who use contract workers will become responsible for deciding whether to deduct tax and national insurance from those contractors, via payroll.  They would be classified as falling within IR35 tax rules. This would effectively give the contractors employment status.  They would be able to claim benefits enjoyed by other employees, such as holiday entitlement, sick pay, redundancy pay, etc.  They would be taxed as an employee and it would be your responsibility as an employer to deduct that tax.

What have we learnt from the public sector?

This legislation has been in effect in the public sector since 2017.  It was brought in to combat tax avoidance by contract workers.  If they  were providing their services via an intermediary (often a limited company) then they would be subject to different tax rules.  They might otherwise be taxed as an employee.   There have been some high-profile and costly cases to determine whether or not an individual is considered an employee and  what the costs of that decision are for the employer.

Contractors have been widely used in recent years as a way to circumnavigate recruitment difficulties.  This has been particularly prevalent in the IT industry, where there is an ever-changing skills requirement for projects.  There is a need for existing employees  to learn new skills regularly, in technology which may only turn out to be short-lived.  This has been prohibitive for business in terms of cost and capacity.   In such a fast-changing environment,  it has proved beneficial and cost-effective to use contractors.

What do I need to do about IR35 for my staff?

But from April 2020 in the UK, the onus is likely to fall on private sector employers to make tax decisions regarding these contract workers.   If your business relies on contractors, then you should start to consult with them now about these proposed changes.

There are various ways to determine employment status.  You will need to consider what applies to your contractors and what does not.

Some of the considerations are:

  • Do  you require your contractors to be in a set workplace at a set time.  Do you expect a set number of hours of work per week? Or can they work the hours they choose, in the place they choose to do it.  Do they have to complete a time sheet, or just raise an invoice for the work they have done?
  • Do you provide equipment (eg. computers) and do you expect the contractors to use that  equipment? Or do you allow – or even expect –  them to provide their own equipment?
  • Do you expect contractors to undertake training provided by your company for its employees?
  • Are your contract workers free to take time off whenever they want to?
  • Do you insist that they take a specific amount of time as holiday?
  • If they are not available for work (for example if they are sick), do you expect –  or allow  – your contractors to provide a substitute to do the work?
  • Do you expect contractors to work exclusively for you, or are they free to provide services for other companies as well?
  • Do you provide transport or uniforms or accommodation for contractors?
  • Can they make use of subsidised canteens or gym facilities, etc (ie. employee benefits)?

Some of your answers to these questions may be rather vague, or dependant on such things as security considerations.  The answers  will not absolutely guarantee whether or not someone is considered to be an employee.  But they are all things which can help to determine the true nature of the relationship.

 Why do I need to think about IR35?

The government consultation goes on until the end of May 2019.  Expectations on employers will be more clear once the consultation is finished.  However,  it is very likely that you will be asked to decide on whether your workers are truly self-employed or should be taxed as employees.

It is worth beginning these discussions now.  You will then be able to make an informed decision about whether or not to deduct tax from payroll and offer employee benefits from April 2020.

Start discussions with your contractors so that they know that you are aware of the implications. You can be sure they are nervous about it themselves.   A frank discussion will help you both to prepare for any tax changes and decide how best to deal with any impact on either the individuals or the business.    It won’t do your reputation as a caring employer any harm either.

If you think this article is useful and you would like to know more,  please join our mailing list, or contact us for further guidance.

Apprenticeships, Interns, Work Placements – What Is The Difference?

There are so many different ways of employing graduates, school leavers, or people who are still studying.  So what is the difference between all of these different work placements? In some industries, these students or ex-students are the mainstay of the business.

You have some work which you think might be suitable to offer on this basis, but it is confusing to know whether to offer an apprenticeship, an internship or a work placement.  Or maybe you just need to advertise the role as normal. Then  anyone can apply,  whether or not they have recently been through the education system.

By the end of this article, you will understand the different options. And you will know which one is the most relevant route for you to explore in your business.

Apprenticeships are for manual work, aren’t they?

You may think that apprenticeships are only for manual work.  The short answer  is “No, they are not”.  An apprenticeship can lend itself to any type of work which requires training in order to do it properly.

Traditionally, apprenticeship was the route for working in manufacturing or construction.  In recent years, though, apprenticeships are offered in a wide range of industries, from IT to marketing, to accountancy.

How long is an apprenticeship?

An apprenticeship is for the longer term.  Generally at least one year.  More often two or three years – depending on the level of the qualification achieved by successful completion.

An apprentice is your employee.  They must be in a real job which offers the opportunity to gain the knowledge and skills they need to pass their assessment.  As an employee, they must be paid in accordance with National Minimum Wage regulations.   Additionally, you must offer apprentices the same terms and conditions which you offer to other employees in similar roles or grades.    But an apprentice must spend 20% of their time in formal training.  You must pay them as normal whilst they are training and you must also fund the training, with some help from the UK government.

The advantage is that you grow your own skilled talent, with the skills your business needs.  You improve your staff retention and productivity and you can reduce your recruitment costs. If the apprenticeship works well, it is common for employers to offer a permanent role, even promotion, to an apprentice once they have finished their apprenticeship.

What is an Internship?

You may want to offer an internship to an undergraduate or student. They can be offered to other people as well,  but are normally offered to students.  An intern would normally work for you for a fixed period of time – normally between one and three months.  This is a way to employ students during term time (usually part-time), or during their holidays.  It is a chance for them to learn about your industry and to gain some experience of life at work.  It is also a chance for them to learn about interacting with others in the workplace.

How does an internship benefit the employer?

As an employer, the advantage is that you benefit from the intern’s labour.  It is up to you what level of work you give to them.   The emphasis is on the training they gain, rather than the type of work they do. You may start off with fairly basic photocopying, filing, etc.  Then you can move them  onto more in-depth work as they prove their capability. Many companies employ interns for a fixed number of weeks or months to support a specific major project or event.

It can also help with recruitment costs further down the line as surveys show that graduates often return for permanent employment once they have completed their education.   The advantages are obvious – you already know the person and they understand your industry and company, not to mention the job they will be doing.  They will require less training than other candidates.

Even if the internship is only for a short period, it can really benefit the individual by providing a range of transferable skills and helping them to network and build valuable connections.  It can even provide employment references.

Do I have to pay an intern?

There is no obligation to pay an intern. You may have seen some discussion in the press about whether it is exploitation to offer only voluntary internships.   As a result, it is more and more the norm for employers to offer payment for internships. In industries where there is competition for student labour, it is beneficial for employers to pay well for internships.

How is a work placement different?

A work placement is often arranged through a school or university and is a short term placement of a student in the workplace.  The placement may only be as short as a week or a couple of weeks, especially if the student is still in school, rather than further education.

A placement is really only a chance for the individual to get a taste of the world of work.  It may be their first exposure to arriving at a set workplace at a set time.  They may have only had limited interaction with adults other than parents and so it is a chance for them to test out life skills such as personal interaction.

As an employer, you may get some fairly basic work achieved, although you need to try and give an overview of the whole company or industry.  This is part of introducing young people to the type of work they may consider in the future, so a broad view is helpful at this stage.  If you can make their time with you interesting and they learn something, then that is even better!  You need to consider this as part of your overall recruitment strategy.  If you engage their hearts and minds while they are young, they will come back to you for permanent work once their education is finished. Alternatively, they might be future customers.  So you would be wise to make this a positive experience.

What about University work placements?

In a similar fashion, you may be asked to offer work placements to students as part of their University studies.  If it is a requirement of their study, then the University will have set ideas about what they need you to provide as an employer.

The placement might be needed for a few weeks, either during term-time or the holidays.  Alternatively, depending on the course the student is following, there may be a request to offer work placement for a day per week over a set period.

There is no obligation – or even expectation –  to pay for work placements, particularly where you have been approached by a school or university for a short-term placement.  The exception to this would be where a “sandwich placement” of a whole year in industry is a requirement of the course.  If you are providing work for a student for a year, then you would be expected to pay a reasonable wage in exchange for their work.

Can a small business offer any or all of these opportunities?

As a small business, you are in a great position to be able to offer students some fantastic practical experience.  The very nature of a smaller business is that you are more likely to offer the chance for people to work on their own initiative and to develop their own ways of working.

If you get the right person, who has a good aptitude for learning and for the type of work you do, then you may find they are a real asset to your business.  It is common for smaller businesses to offer permanent employment to people who they have supported through an apprenticehip.  Or to employ someone who has been an intern or had a work placement with them.

At the very least, you may find the same person comes back year after year, holiday after holiday for the chance to work in your business .

If you think this article is useful and you would like to know more,  please join our mailing list, or contact us for further guidance.

The Wrong Recruitment Decision – Putting Square Pegs In Round Holes

It is easy to make the wrong recruitment decision.

In a recent article I asked if your recruitment advertisement described your vacant role properly and if you even know what the job actually consists of.

It is worth exploring this a little further, as many employers fall into the trap of looking for skills that aren’t really needed to get the job done. A CIPD report last year found that almost half of the UK workforce are in jobs they are either under- or over-skilled for.   37% of workers have skills to cope with more demanding duties than they currently have.  Specifically, many university graduates are in jobs which do not require degree level qualifications. 

Someone with a degree is well qualified

There is a tendency to believe that having a degree means someone is well-qualified, but they may not be qualified in the right skills for your vacancy and their university life may not have prepared them well for the workplace.  Using degrees as a way of filtering job applications is not helpful to either you or the applicants. 

If someone has a degree but is otherwise unskilled for the role they are given, then you are setting them up to fail unless you provide them with training to fill that knowledge gap.

The dangers of the wrong recruitment decision

When someone is under-skilled for a role, they will not do a very good job and then you will start to question whether you made the right decision to employ them in the first place.  They are certainly unlikely to get promoted if they are failing at their current role, and they will find it difficult to get another job if they are not doing well at the one they are in. 

If you have put a graduate in a role for which they don’t have the right skills,  it follows that they  will not be able to command the kind of salary they might have expected.  So they will eventually become resentful. Their motivation and productivity will be low and that will mean their job satisfaction is also affected adversely. 

Additionally, they will take time off sick or start to disrupt others in the workplace.  Before you know it, they will have become one of those “difficult employees” which every employer dreads.

What about their employer?

From the employer’s perspective, you have spent time and money in the recruitment process and may wonder why it has not produced a better candidate.  You need to be honest and consider whether that is because you did not have the right expectations and filtering process. 

You will need to spend more time and money to put the situation right.  It will mean either an investment in training the current incumbent so they can actually do the job correctly, or you will need to move them to something else and go through the recruitment process again.  A little more thought at the job description stage of the recruitment process could well have prevented this problem.

The other end of the scale

At the other end of the scale, one in 10 people surveyed believed they were under-skilled for the role they were in, but a quarter of the respondents said they had not received any training in the last year.

If you ensure your employees have the right skills for their jobs, either through recruitment or training (or both), then they will be happier in the workplace and you will benefit from higher productivity and increased profitability.

If you think this article is useful and you would like to know more,  please join our mailing list, or contact us for further guidance.

Recruitment Challenges – Getting the Job Done

British industry is facing worsening recruitment challenges, particularly in manufacturing and the service sector, according to the latest BCC Quarterly Economic Survey.

The survey of 6000 companies across the UK gave several potential reasons for these difficulties.

In addition, employers are facing unprecedented difficulties as a result of uncertainty around Brexit and whether they will be able to recruit EU nationals in future.

But all employers are in the same situation and are trying to recruit in the same difficult market conditions.  Yet some are managing better than others and it may be a good time to look at why this is.

If you are struggling to recruit, then maybe the first thing to do is to hold a mirror up to your business.  There may be some pointers there which can help you to improve your success in dealing with your recruitment challenges.

They are looking through your window…

It is important to consider your online presence as a key recruitment tool as well as a marketing tool.

Statistics show that 90% of candidates, particularly the Millenial generation, consider an employer’s brand when applying for a job. But this is not something to consider at the last minute when you are about to advertise a vacancy.  It is something which needs to be worked at and built up over time, so that the face you show the world is a genuine reflection of your Company.

Are you really clear about what you want?

The first recruitment challenge you face as an employer is to know what you are really looking for.

Are you asking for the right qualities?  Have you worked out exactly what the job entails? Do you know what, if any, qualifications are actually a requirement of the job (rather than a “nice to have” option)?  Can the job be done part-time, or by job share?  Is it short-term, or longer term? 

Ideally, you need to think about this when you produce your recruitment strategy, when you do your business planning and when you have a new vacancy.  What you needed for the job in the past may not be the same thing you need now.

Have you looked at all the options?

Maybe the most important consideration is whether a current employee can do the job, with or without some training.  It may well be more cost effective to train someone up than it is to recruit someone new.  Again, this is something you can look at when you are looking at your recruitment strategy.   

If you cannot redeploy an internal candidate, can you restructure how the work is organised?  Can it be spread between several different people?  Can all or some of the work be automated in some way? Does it need a permanent employee, or can you use someone in a work placement, or an intern, a contractor or an agency temp?

Does your advertisement describe the job properly?

This is where a well-written job description is critical. If you are not careful, the language you use in the job description can alienate half of your potential pool of candidates. It could prevent them from applying at all.   Your language must be inclusive and avoid gender bias. Additionally, there is some belief that men will apply for a job when they only meet two thirds of the qualifications, whereas women will only apply where they meet 100 per cent.

Try to avoid being too picky.  Does your job really require a first class honours degree?   Is it really necessary to have experience in a similar role, or can someone be trained quickly?

I saw a post on LinkedIn recently from a job seeker who said it would be really helpful if employers included a salary band in the advertisement.  I accept that his is a matter of some debate, particularly where an employer cannot afford to offer a high salary.  On balance, I agree with the job seeker in question. It is a waste of everyone’s time if someone goes through the whole interview process and is offered the job, only to turn it down because their salary expectation was much higher than can be offered.   This is also disappointing for all parties.

Are your interview skills the biggest recruitment challenge you face?

You are going to be the line manager of the new recruit and so you want to make sure you get the right person.  But are you the best person to make that decision?

We all like to think that we are fair and make unbiased decisions, but unconscious bias is a trap for us all. We have evolved that way, so that our brains can quickly sort through information and come up with an answer.  But the answer we come up with may be the product of years of conditioning. 

No matter how open-minded you believe you are, you will have judged someone within seconds of meeting them, based on a whole range of subconscious issues. You may well be aware of the need to ignore first impressions, but we all judge people on gender, age, race, social class, wealth, political affiliation, accent, educational levels, physical attractiveness and a myriad other things.

How can you avoid this bias?

Where possible, it is helpful if you can involve other people in the recruitment process.   Make sure applications have names, ages, gender and race obliterated when they are reviewed.  Match them against a series of questions.  

If possible, ask someone else to review the applications separately to you. Try to get someone else involved in the interview process with you.  Then don’t compare notes until the whole process is complete.  If you are the boss, let others give their views first so that they are not influenced by what they think you want them to say.   They might spot something you don’t see. 

Other hazards to avoid

I have discussed before the need to show off your business and the vacant role to their best advantage. If you were trying to sell your house for the best price possible, then you would spend some time and effort in preparing for the sale.  It is the same with recruitment – you need to make sure the candidates see a place they want to work in and where they will feel welcome.

Finally,it is critical that you let people know your decision.  Give a call, by all means, and make a verbal offer, but make sure you follow it up in writing, quickly.  If the candidate is good, they will have their pick of jobs.  You may find they have accepted another offer if they have to wait too long to hear from you.

Courtesy and common decency also says that you should contact the unsuccessful candidates and let them know why they were not the first choice.  You want to keep them interested – you never know if they will one day prove to be the ideal candidate for a future job with you.   It would be a shame if they don’t apply because they don’t like the way you treated them this time.

Finally…

There is no quick fix for this problem and the approach required will depend on the sector and size of the organisation involved.  Recruitment is not an overnight issue that only needs to be considered when you have a vacancy.  But no matter what the size of your organisation, it is vital that you have a recruitment strategy and that you review and revise it regularly.

If you think this article is useful and you would like to know more,  please join our mailing list, or contact us for further guidance.