Just as contractors have long-suspected, UK hiring managers have an IR35 knowledge gap, which could prove costly if left unbridged

Key concerns and gaps in knowledge among hiring managers, particularly regarding overseeing the legal aspects of managing contingent workers, have been identified in the results of our recent survey of 300 UK hiring managers, writes Áine Fanning, managing director of Cpl's Talent Evolution Group.

Please mind the (hiring manager IR35 nous) gap

This legal knowledge gap is considerably significant for contractors working through umbrella companies or Personal Service Companies (PSCs). Hiring managers being unaware of the legal frameworks governing contractors could lead to issues with HMRC’s Off-Payroll Working (OPW) rules, also known as IR35.

The OPW rules were put in place to ensure that contractors, who are essentially operating as employees, pay broadly the same tax and National Insurance contributions as an employee.

Call for clarity

Positively, hiring managers are aware of the issues which could arise. But the research indicates that 94% of the managers believe there should be more clarity around the legal distinctions between permanent employees and temporary/contingent workers.

The lack of clarity could potentially lead to misclassification of workers, resulting in incorrect application of OPW rules and potentially leaving contractual parties open to HMRC penalties.

Our survey also reveals that hiring managers find it challenging to keep up with the legal requirements of contingent recruitment.

Overwhelmed and not sure where to start

Almost half (48%) of the managers admit they struggle to keep up to date because they find the subject overwhelming or don't know where to start.

There are several key factors which hiring managers should be aware of when reviewing whether a temporary or contingent worker's status is inside or outside the OPW regulations. These key factors include:

• The contractual agreements and if they stipulate project deliverables/timescales.
• Contractors determining how/when the work is done.
• Whether the contractor's work is generally supervised or unsupervised.
• If contractors use their own equipment or materials, or if a laptop, for example, is supplied to them by the engager.
• Contractors not being paid sick pay or holiday pay.

IR35 status is fluid

Hiring managers should also be aware that, as a project starts, the contractor might legitimately be classified as outside IR35. However, over time, the nature of the project may change and affect the contractor's status under the OPW rules.

A regular review of the workflow is therefore important.

Failure to adhere to HMRC’s regulations in this area and show “reasonable care” in assessing contractor IR35 status can lead to significant penalties, plus interest -- on top of the unpaid tax and national insurance contributions. 

Be aware, HMRC states that organisations engaging contractors should not have their hiring managers rely only on the results of CEST - the government's own self-assessment tool.

The more minds on Off-Payroll Working rule-status the better?

As a result, an independent assessment is often (and rather understandably) favoured. And perhaps the complex subject of status is indeed a case of ‘the more minds the better,’ in wake of Cpl’s Talent Evolution Group survey finding a tangible need from hiring managers for improved clarity, knowledge, and understanding of employment laws, particularly in relation to contingent workers.

For contractors working through umbrella companies or PSCs, hiring managers not feeling they have enough clarity could lead to a greater risk of non-compliance with OPW rules. It could even mean potentially steep financial penalties for employers – as have already been seen and imposed in the public sector.

Lastly, it’s high time for a mass straightening out…

To avoid these potentially very costly pitfalls, it is essential that hiring managers are provided with the necessary training and resources from their organisations, or reputable third parties, to understand and comply with employment laws, including OPW rules.

We’re just one example of a partner who can support organisations concerned about mitigating risks around temporary workforces. With our model, all contractor determinations are reviewed at least twice a year when contracts are renewed. We’re well-placed to spot the issues, given we’ve conducted independent audits, pinpointed non-compliance with the OPW rules, and straightened out the legal obligations for both hirer and those being hired. This work has not only helped to ensure compliance with laws like IR35, but also protects the rights and entitlements of contractors while maintaining the integrity of the UK's flexible workforce.