Last year, the UK Government decided to postpone by 12 months the implementation of off-payroll legislation (also known as IR35) a few weeks before it was due to come into force in April 2020, as part of its COVID-19 economic response package.

As 6th April 2021 approaches, HR professionals in both the private and voluntary sectors will wonder whether it will be deferred again. Almost 12 months on, not only has the UK economy not fully recovered from the pandemic, but it also hasn’t begun to recover.

That said, after spending so much already on protecting people’s lives and livelihoods, the Government could do with some extra income quickly to keep the magic-money-tree forest fertilised. So, perhaps, it will press ahead with the current timetable. Or, because of political reasons, it might wait.

What can employers and HR do now?

However, for a variety of reasons, it’s probably fair to say it’s not a case of ‘if’ the change is brought in but ‘when’ and as such HR and reward professionals should help their organisations prepare. For some employers, the first step might be picking up where they left off last March. 

However, given that so much has happened to employers since then, it’s probable that for most employers (CIPD research finds just 11% of employers have been unaffected by the pandemic) any existing plan will need to be refreshed and adapted before it can be fully implemented. In addition, some of those involved in designing the plan, or were due to implement it, may now have left the organisation.

However, whether there is or isn’t a plan of sorts, the first step for people professionals is getting up to speed about what IR35 is actually. For instance, knowing when the off-payroll rules apply and what new responsibilities medium and large employers will have. You can get information about IR35 from the Government’s website, as well as from the websites of various accountancy, payroll, HR and legal firms.

What specifically should HR do to enforce IR35?

Another step is finding out within the organisation who’s going to be responsible from April for assessing whether contracts fall in or outside of IR35? If it’s another department, then it makes sense to check what help it will expect from HR. This will help to determine your respective roles and responsibilities, as well as setting expectations. 

For example, while another team might be responsible for making the assessments, it might still want HR’s help when it comes to communicating with contractors, or it might want HR to set up an appeals process in case some contractors are not happy with how their contracts have been determined. It might also make sense to consider what would happen if the other department had to change its mind and didn’t want to be responsible anymore? 

If the HR team is now going to responsible for determining whether IR35 applies, then it should check what’s happened in the past. For instance, are there any legacy issues that you should know about; are there any views and personalities of which you need to be aware; is there a list of the contractors who work via a Personal Service Company (PSC) for the organisation, or does one need to be created by talking to each department; what about those people who have contracts with agencies, etc?

Who could manage IR35

Given that you’re probably grappling with the fallout from the pandemic, Brexit and the associated financial dislocation you should also be asking whether your HR team has the time and money needed for building and implementing the plan in-house. Could it borrow specialists from other departments within the organisation to help? Could it buy in expertise from outside the organisation?

For instance, while the online tool created by the HMRC to help employers determine whether contractors fall in or outside of IR35 can make a decision in most instances there are cases when it can’t. In many cases, IR35 determination won’t be binary, therefore expert opinion might need to be brought in to help make an assessment. Employers that have many people whose status is indeterminate might need to factor this into their planning. 

You will need to work out who’ll be impacted, not only in terms of the work involved in assessing the contracts but also in terms of communicating with the contractors how this assessment will be done. To help with communications, you’ll need to create a plan that identifies who is going to communicate, what is going to be communicated, to whom, by when, where and how. Questions to consider include should you create a list of frequently asked Q&A to distribute; how to capture opinions of contractors; or whether this comms plan will create needs that require one-off or ongoing support from HR? For instance, if departmental heads will be required now to communicate the process to their contractors.

HR will need to set up a process outlining when and how contractors will get their status determination statements (SDS) from the employer as well as creating a process for appeal for those individuals who might question their SDS.

HR needs to think about the potential workforce and workplace consequences of the new process. For instance, if a contractor is found to be inside IR35 and therefore will be taxed as if they’re an employee, what happens if that contractor then wants to become an employee? HR should decide what the organisation’s response should be.

For example, it might decide that it’s only fair that such people should be able to become employees if they wish, or that the benefits of employing contractors as employees could outweigh the costs, such as if the contractor decides to take the determination to an employment tribunal. Alternatively, it might wish to decide to look on all such requests on a case-by-case basis.

Other possible consequences of people falling within IR35 that HR needs to consider are that some contractors might: want higher fees to compensate them for the increased tax they now have to pay, decide to leave, and want their contracts rewritten so that they fall outside IR35. All of these can have implications for the organisation in terms of who does what, when, where and how. 

Employees that fall outside of the category of IR35

There are also issues for HR for those individuals who fall outside of IR35. These people can’t be treated as part of the organisational family anymore. Don’t give them a pass to the building, a computer or a parking space. Don’t let them use the company gym, canteen or coffee shop, and don’t invite them to training or social events. Many people professionals might find this ‘them and us’ approach difficult, but contractors can’t be treated as if they are part of the workforce anymore. It’s likely that from April, contractors themselves won’t want to be treated as if they were employees either.

What’s often forgotten is that what’s happening isn’t a one-off event. From April 2021, you will need a process in place that will deliver fair and consistent outcomes each time you engage a contractor. Similarly, work evolves and so too will the nature of the relationship, contracts that were once outside IR35 could gradually find themselves inside and vice versa. Consequently, HR will need to ensure that contracts are reviewed regularly to assess whether the relationship has changed.

The organisation will need systems that collects and stores assessment decisions (in case they are subsequently queried either internally or by HMRC) as well as making sure that any information stored meets GDPR and cybersecurity requirements.

However, how HR helps their employer adapt to the change in IR35 assessment could help them attract skilled contractors in the future. If these individuals know that the firm has processes in place that will treat them fairly and constantly, that it doesn’t make blanket assessments and the SDS are useful and informative then they are more likely to want to work for that organisation. Something that could be important if, after the pandemic, more people want to enjoy the freedom and flexibility of being self-employed. 

About the author

Charles Cotton, Senior Performance and Reward Adviser

Charles has recently led research into the business case for pensions, how front line managers make and communicate reward decisions, and managing reward risks, as well as the creation of a good practice guide on the annual pay review process. He is also responsible for the CIPD’s public policy work in the area of reward and is a Chartered Fellow of the CIPD.

More on this topic

Thought leadership
UK employment law round-up: July 2024

Monthly round-up of changes in employment law in the UK

Employment law
Religion and belief discrimination: UK employment law

Explore our collection of resources around legal issues relating to religion and belief discrimination in the workplace, including philosophical beliefs

For Members

More thought leadership

Thought leadership
UK employment law round-up: July 2024

Monthly round-up of changes in employment law in the UK

Thought leadership
Briefing | Social mobility in the workplace

Research on how an employee's socioeconomic background or class affects their development opportunities and how to maximise social mobility in the workplace

Thought leadership
How are organisations transforming their HR operating models?

We look at the main focus areas and share practical examples from organisations who are optimising their HR operating model

Thought leadership
Skills, better jobs and business partnership key to UK growth agenda

Ben Willmott explores the new Labour Government strategies to enhance skills and employment to boost economic growth