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  • Good morning, everyone.

  • Thank you for joining our webinar.

  • Get ahead of wire 35 bait talents.

  • Car City, This is Matilda about to marketing.

  • Executive addressed a source.

  • Right.

  • And today I'm joined by Robin Fisher and Daria Johnson.

  • Area is director of Consultants.

  • Service is addressed the source, right.

  • And Robin, it goes right for duty.

  • Robert and Daria will be taken us through what I are 35 and how to limp back to your business.

  • They will also show us the types of solutions that will help you get a head off business demands.

  • Welcome again.

  • Some technicalities.

  • Before we started, everyone will be muted on entry.

  • If you have questions, please decide those to the chat box.

  • These will be answered at the end of the session.

  • If there any questions that we don't have time to answer during this one hour, we will respond to those privately.

  • We're now ready to start Robin's area over to you.

  • Thanks.

  • Good morning, everybody.

  • Thank you for taking time out of your days.

  • Thio, Join this Webinar.

  • I'm gonna speak for around 30 minutes which is looking at the what are 35 days on end from a more legal perspective and then the handover to Daria, Who's going to talk through our consulting talent proposition, which is one of the ways that you can be five.

  • So the late nineties saw an explosion in professional contracting.

  • If you leave H.

  • Marcie's version, a lot of employees leaving a test on Friday and coming back on the Monday as an independent contractor in 1999 legislation was passed to address this perceived problem, which is commonly known as I are 35 on DDE.

  • In the following sort of 10 to 15 years, HMRC put out a number of pieces of guide and same to help contractors understand I are five and implement its requirements within their business.

  • That included the creation and I are 35 Forum, where industry and sector members were invited.

  • Thio work with HMRC on, then the now defunct, which were designed to layout Continent Rios, and how high are 35 might supply.

  • One of the challenges HMRC has always had is enforcing it, and I are 35.

  • Investigation can easily take 2 to 3 years to resolve on.

  • That doesn't even include the opportunity for contractors to then take the matter to the tax tribunal.

  • Some of you may be aware that actually, their most recent case that was heavily publicized is when they took Lorraine Kelly to the tax tribunal, pursuing her for over £1 million of tax on.

  • They failed in their claim that she was, in fact an employee of I T.

  • V, and she succeeded in her case that she was an independent contractor.

  • This just highlights the challenge policy of heart in enforcing the legislation in about 2016 There's a lot of press directed a lot of the BBC, but also local councils about the use of highly paid contractors in senior roles.

  • This was against the background austerity, diminishing public funds on the perception that public money was being used to further the careers of several high paid individuals.

  • Against that background, HMRC announced that legislation would be introduced to shift the burden of complying with the I R 35 onto the end user of a contract, so, at the moment, the contract themselves or sew it back in 2016 the contract themselves was responsible for setting our 35 on that responsibility was going to move to the end user on buying.

  • Jeez, that is, the company or organization for whom the contractor is providing service is that legislation was introduced in 2017 on DDE in H.

  • Marcie's worth.

  • It's been a great success.

  • They measure that mostly by seeing an increase in P a.

  • Y, your national insurance receipts.

  • Shortly after HMRC announced that the legislation would be moved into the private sector, they estimate that up to 2022 there will be a £1.2 billion tax loss as a result of contractors not properly complying with the I R.

  • 35.

  • Earlier this year, it was announced that legislation would come in in April 2020 on the end of May saw the closure of a consultation on what that legislation is going to look like.

  • So, whilst we don't understand yet quite what the legislation will look like in the private sector, we do know what the I R.

  • Five test means.

  • So I are 35 effectively sets out the circumstances in which a limited company contractor should treat the money they receive his employment income on when it is employment income.

  • They should be deducting tax and national insurance as if they were an employee.

  • Broadly speaking, the legislation target disguised employees.

  • The challenge with the legislation is determining employment status is very case law.

  • Let so the legislation only says that I are 35 applies if the relationship between the end Jews on the worker is one of employment.

  • The determining what employment is and is not is one of the biggest challenges that HMRC has struggled with over the past 20 years.

  • There are three principal factors that determine whether someone is employed or not.

  • The one that mostly focused on by HMRC and contractors is what's called the Rockets of Substitution, which referred to the ability off a contractor to send someone else to do the job.

  • The biggest challenge faced with this is quite often a contractor is the only directs on shareholder of their limited company, which makes it a challenge them to send someone else to do the work.

  • The other two factors are control over the work and to what extent the NGOs exercises supervision direction over the manner in which the contract to complete work on then finally, mutuality of obligation, which considers whether or not there is an ongoing relationship between the end user in the contract by which further work would need to be offered these three principal factors.

  • There are other factors that hmrc will consider, such as whether the contractor is taking any financial risk in doing the work.

  • Most contractors paid for the hours they work and don't take any financial risk.

  • HMRC will also do what's called a part and parcel test on Look at whether the contractor is just part and parcel of the NGOs organization.

  • So can you tell them, apart from an employee, do they have a different color badge?

  • Are we invited to the Christmas party?

  • And as I say, these investigations at the moment can go on for up to two years.

  • As HMRC explored, the nature of the relationship between the N.

  • Jesu on the contractor thing is important to note that at the moment in the private sector, any contractor should be applying this test every engagement they undertake and where the test results in them being treated inside.

  • I are 35.

  • That is more like an employee.

  • The contractor should currently be accounting for tax as if they are the scale off this change shouldn't be underestimated.

  • Identifying the number of freelancers in the UK is a challenge because the data is not readily available, but we think it's somewhere between one and 1/2 to 2 milion contractors providing their service is through their own limited company.

  • I'll come on shortly to actually what the detail on the legislation means.

  • But actually, just going through an assessment process for that volume is a huge challenge on something that was noted by all respondents to the consultation, irrespective of the sector.

  • They were working it.

  • What we do know about the legislation at the moment is that it's intended to only apply to medium and large businesses, so small businesses within the UK would not be affected.

  • And that means that four contractors working in a small company they won't need to change the way they work.

  • They will continue to do the eye are 35 assessments themselves where you are a medium or large company, and he used contractors.

  • You will need to make a determination for each contract you engages, whether I are 35 applies or not and where it does deductions from that pay for tax and national insurance then need to be made.

  • And that's whether you pay the contractor director yourself or use an agency or other third party to do your payroll.

  • This change has a number off very significant consequences throughout the entire supply chain.

  • If you are a user of contractors so talking in the grandstand source right worlds.

  • If you're one of our clients, you suddenly faced now, with the challenge of being able to make that determination on whether that is something that is done internally using a combination off tax specialist legal specialists HR whether you look to use an external tool.

  • So HMRC has the check employment status, the tax tool on there are a number of other commercial providers available who will do these assessments.

  • And then, once you determine the manner in which the assessments are going to be done, then you end up in the challenge around what to do with the results of it.

  • Come on toward the end of my slides around how you can go through three steps to do these assessments.

  • But the most pressing challenge is around the contractors who were determined to be inside.

  • I are 35 that means so they are caught by the legislation and need to have those additional cost deducted.

  • So where a contract with inside E I.

  • R.

  • 35.

  • The most immediate cost is employers National Insurance, which is 13.8% of the moment.

  • And then if contractors are moved to P A Y E.

  • There are then additional costs on top of that around apprenticeship levy pension contributions under the auto enrollment rules and then Agency workers regulations, which looks a parity of pay with your permanent workforce.

  • So treating a contract with inside are 35 all moving them to pay a whiny model, both not particularly attractive options.

  • Um, on from a contractor's perspective, there's an immediate drop in their take home pay, and they lose the benefit off, offsetting expenses against their income and on the final challenge I want to know is just around that small business exemption, because that then leads to this unlevel playing field in the market space.

  • So where you use contractors whose skill set can be used right from the smallest business up to enterprise sized businesses, those contractors, they're going to find small companies Maur attractive to work for if they are allowed to reach these determinations themselves.

  • So in 2017 legislation was introduced into the public sex on, there was a quite serious impact.

  • So I can speak certainly from Iran stud perspective, where we have a very large care business.

  • We certainly saw within the care market a number of contractors who had bean working as professional contractors for a number of years.

  • Give it in, give it up they.

  • Some of them went perm with the clients because they felt that if they're going to pay taxes, a permanent employee they wanted all the benefits that came from Employment on again saw a number off them who perhaps were reaching retirement and decided to make the step and moved to retirement.

  • Because of these changes, you'll see a number of figures there, and these are absolutely reflective off what we saw in 2017 particularly around increases in rates payables contracts is particularly for those who are critical to the delivery of project, which, as you know, there are some projects that you just cannot lose talent on on actually left with a really difficult choice to make about what you do to resource those projects.

  • So a couple of examples of what that financial impact can look like on DDE, I think.

  • What are you saying?

  • What I said some of my colleagues and I was talking to them as well is that there are ways to address this and ways to mitigate.

  • And certainly I'll touch on that and Daria will.

  • But I think at a headline level, none of this is particularly good news.

  • You'll see on these two examples that you know firstly, where contractor is currently getting around.

  • A day rate of 230 moving to inside are 35 for the contracts drops their take home pay by about £7000.

  • Toe up, lift their gross pay.

  • You need to add an additional £15,000 into the pay line to get them back to their their current take home.

  • And what happens is that that gross moves up.

  • So does the man about you know, the amount by which they need to uplift.

  • It's the second example you're looking at a 33% increase on the gross pay to be able to bring the contract of back up to the pay they were receiving prior to these changes.

  • Now these are can very little bit because a lot of this will depend on how the contractor structures their business on what expenses they currently can take.

  • Andi offset against revenue.

  • But these are some broad guidelines which we think are fairly representative of the changes that will be needed.

  • We'll talk through a couple of examples that we, uh, in the price in the public sector.

  • Sorry and first in the n h s, which probably started with an example of how not to deal with the change.

  • In March 2017 the N hs decided to apply a blanket decision that'll contractors would be called by I.

  • R 35 now for the private sector and in the legislation was very similar public sector.

  • There is an obligation to make a reasonable decision.

  • So the N HS decision was never really going to stand up screwed today.

  • But what the N.

  • H.

  • S saw after there was a mark, a huge migration off work and saying, Well, if that's the decision, we're out of here.

  • We're moving.

  • We're not gonna work for you.

  • You know, I genuinely think that I'm outside of scope on If you're not willing to apply the test properly, then I'm gonna go find a job elsewhere on.

  • You'll see that very quickly within two months.

  • The N hs reversed that decision, Um, and assessed contractors on a case by case basis.

  • But what you will also see is that the impact on the contract population is huge, where the opportunity exists to move to a private sector role.

  • Certainly migration out into private medical care where the the contractors were free to determine their own status on, of course, particularly with the N HS, which it's critical to staff it to a certain level, there was a huge impact, particularly the cost of them stuffing it increased.

  • And then the 2nd 1 I want to look at is just tear fell.

  • So this again just highlights the point I made earlier around the additional costs that need to be found if a worker moves on to a P a y m model.

  • So currently, the employers Nash Insurance Apprenticeship levy Stakeholder pension, which was 1% of the time, is now 3% of the contribution, Um plus, in the case of TfL, six weeks holiday pay, but that would vary in accordance with a double.

  • You are depending on what your permanent employees are paid.

  • I think tfl faced a significant number of challenges in rolling this out.

  • Um, I think we see some of this at the moment in the private sector, some of the clients we speak with consider umbrella COS t not be a viable option We think they are.

  • We don't think they offer the same benefits as they would have a few years ago, but actually a zone alternative.

  • They are provided.

  • The due diligence is done on who you're working with, and they're a number of organizations that will order to check umbrella companies.

  • But we certainly saw growth in umbrella companies offering inventive models promising significant take home pay on all of those.

  • Just expose contract thio further risk, But also I think this perception that the i r.

  • 35 h Marcie certain give the view that you're avoiding tax.

  • If you don't pay as an employee, I don't think that's true.

  • I think there will be a number of contracts roles where are 35 dozen supply, particularly those where it's a very specialised skill set coming in for a defined project or define deliverable.

  • And actually, it's okay to arrive at a conclusion that the worker is outside escape by our 35.

  • I think the key point know that in TfL, having spoken Thio Climate CFL, who run their project, would agree with that.

  • It's important to understand that no, a legal project or attacks projects this really crosses functions on an integrated approach is needed because you need to draw down on the special ism of eye out what our 35 years and house apply those rules.

  • But then it's important, hugely important to engage with hiring managers and the business community to understand what their needs are and why they are procuring labor and talent in the way in which they are on dhe.

  • Fundamentally, this goes to the heart of how contingent labor is procured within an organisation.

  • On whether that's a mix of agency P A.

  • Y es statements of work, professional contractors or a variety of other solutions on what we certainly have seen is I think, that organizations have gone down the route of agency P A.

  • Y e of professional contractors on.

  • I think we see broader solution being key to addressing these challenges of I R 35.

  • So they're always to to mitigate the impact.

  • And I think it's important to get started now if you're not started already.

  • Um, what we saw in the public sector was this kind of number of hidden contractor populations where companies and organizations were just not sure what contract as they had in their business on who they were procured from.

  • So I think our first step really is to understand and to understand what your current contingent labor looks like.

  • A cross your entire business, whether that contractors p a y, a statement of work on to really do the due diligence on where you're getting your contingent labor from and how they engaged.

  • And that's really looking throughout the whole supply chain, where the direct vendors or further down the second step is then to start working through those assessments on Do do you think I are 35 applies to this type of role on this type of job.

  • On the early stage, we would certainly advocate looking at a role level and trying to develop some rules of thumb based on average assignment.

  • Lend Day, Ray pay rate, what the nature of the work is.

  • And I think we look internally and say, Actually, you know what?

  • Knowing that this type of role is mostly always outside our 35 is really helpful starting point.

  • And I think think about how you'll do those assessments, whether you would like hiring managers to do the initial assessment using something like an HMRC tool, will you want to partner with an external provider, whether that's an M, S, p or an agency.

  • But define that process on do it in a way that aligns with your risk appetite within your business and then perhaps the most challenging pieces in responding to those assessments.

  • Um, when you completed the assessment process, think what you'll find is you'll end up with three buckets of contractors, really those that are outside our 35 really nothing changes some that are inside.

  • I offered five definitely caught and then some in the middle, which is a bit of a gray area and need further review and analysis.

  • I think for those who were caught by our 35 those in the gray pot, that might be, um, it's moving on to that criticality assessment of how critical is the contractor for our organization and the work.

  • They do it because if their business critical, it then moves on to this challenge off Dewey uplift the pay rate to retain them.

  • What alternative solutions can we offer to retain that talent within our business?

  • I think within the private sector, what we see is that those decisions are less straightforward because the choices available to contracts in the private sex are much greater.

  • So if you give an example, um, within our care business, one of the core job types was a qualified social worker, and if you are qualified social, your options are fairly limited.

  • About where you can go and where you can provide your service is that if you're an I t contract, the range of organizations you can move turn groundwork for is much broader, and therefore it's harder to then retain.

  • And then when you are looking at retention, what does that look like?

  • Because for contractors, the P A y agency temp model kind of butts up against their self perception of being professional consultant?

  • What are the alternatives on?

  • I think we increasingly feel that there needs to be that compelling story to then retain and attract talent, particularly those who traditionally provided their service is through their own limited company.

  • Um, who would otherwise be called by i r 35?

  • I'm not gonna run through a ll the statistics on the slide here.

  • I think you'll know that you know, the nature of work and how work is being done is changing, and it's changing quickly on DDE.

  • Brexit is scheduled for the 31st of October.

  • So we are It's a difficult piece of regulation, a challenging time for the for the workplace, really?

  • On DDE.

  • Um, its impact remains to be assessed.

  • I'm the handover nail to Daria who's gonna talk you through a consulting talent solution?

  • Thank you very much for being on good morning.

  • Oh, thank you for joining before I kick off.

  • I just wanna reflect on something that Robin had mentioned.

  • Um, it's about that.

  • No, um, one solution will fit mitigation off 35.

  • And it's about recognizing on alternative solution that can help organization to mitigate this.

  • And it all has all you can see on the slides right now that we're not just impacted by 35 impacted on different trends.

  • Chips that's happening in the market.

  • So being flexible or a child in the way we hire retain talent emerged into a strategy is absolutely critical for organization that we work for but obviously for ourselves as well as is an employee.

  • So I'm gonna talk a little bit of our consultant talent offering the focus.

  • Obviously, here is the investigation of 35 but I will give you a little bit of introduction what it actually is.

  • So consult consultant talent.

  • 30.

  • She's a standard and service is part of rum stud and runs the source, right.

  • Um, we are very much compliment any type of existing solution that you might have either from another pure Mississippi or your in house talent position on service model.

  • We hire a professional skills, different levels into<