Fees plus bonus

[Jimbo54]

Quick question: If instead of a standard day rate, I accept a decreased day fee and a "top up" bonus for successful completion, amd I more or less likely to fall foul of IR35

Thanks

Jim

[WTFH]

In my opinion: Employees get bonuses, suppliers don’t.

[Lance]

Quick question: If instead of a standard day rate, I accept a decreased day fee and a "top up" bonus for successful completion, amd I more or less likely to fall foul of IR35

financial risk is a minor pointer towards being outside.
Not one that's been tested in court though. Make sure you have the 3 pillars covered.

[Lance]

In my opinion: Employees get bonuses, suppliers don’t.

I see your point. Perhaps if the fee is minus some if you don't deliver on time.
Either way it's not a strong indicator of one or the other.

[Jimbo54]

In my opinion: Employees get bonuses, suppliers don’t.

That, unfortunately, was my feeling too....I think some negotiation is in order. Thanks

Jim

[northernladuk]

Chance of this making a difference to IR35 status - Low
Chance of this putting you out of pocket because they don't pay up for whatever reason - High

This is nothing to do with you working practice or IR35 status. It's just a contractual agreement to make sure you don't piss off early. I'd not be taking this gig personally. There is only one way to get what you are due and too many to get screwed.

[WTFH]

Fees plus bonus

I see your point. Perhaps if the fee is minus some if you don't deliver on time.

Good point, yes if there’s a penalty clause around failure to hit certain goals, then that would be more B2B than B2E.

My preference would be to avoid getting into the mess in the first place.
Here’s my daily rate: ££££

[WordIsBond]

In my opinion: Employees get bonuses, suppliers don’t.

I couldn't disagree more. Employees generally get bonuses over the sum of a year's performance, not necessarily at the completion of a project. Suppliers, on the other hand, often get payments spread out over time with a final larger payment upon delivery.

This is not very common with contractors but it is very, very common in business generally and would be a pointer towards being in business on your own.

Change the contract to say "completion fee" rather than "top up bonus".

One of the pointers is whether or not you are rewarded for efficiency and punished for lack thereof. If you complete in three months rather than six, your average daily compensation is going to be much higher due to the completion fee being spread over three months instead of six. So this is exactly one of the points that was covered in the old Business Entity Tests.

You also take on a risk that the client kills the project before completion and you don't get that final payment. Or that you fall ill and can't complete. So yes, you are taking on some financial risk, in addition to being rewarded for efficiency. That's two pointers.

It means your compensation is in two parts -- daily rate and a fixed price component. Fixed price is a strong indicator of independence.

The question is not whether this is good or bad for IR35 -- it clearly is good. The question is whether you want to take on the risk. The answer to that depends on various things -- is the day rate high enough to mitigate the risk, how well-defined are the specs, how much are you dependent on others for completion, how long you think the job is actually going to take, etc.

Here's how I'd decide:
A. Subtract the daily rate from the rate I'd want for doing the job. (Depending on the job, this might be higher or lower than my normal rate.) Call it the shortfall.
B. The difference has to be made up by the final fixed price component. So divide the final fixed price component by the shortfall. That will tell you how many days is your break-even point for the job. Call it break-even days.
C. Estimate how long you think the job will take.
D. Is the estimate fewer days than the break-even days? If so, and if your estimate is correct, then you will come out ahead. If the estimate is higher than the break-even days, then you are not only taking risk but you are being under-compensated. I'd probably walk away, they aren't going to move far enough to cover that.
E. Your estimate probably won't be correct. Multiply estimate days by 1.25 (AdjEstimateDays). That gives you a 25% margin for error. If you are still lower than the break-even days, then you probably are being pretty well compensated for the risk you are taking.
F. If EstimateDays is lower than break-even days but AdjEstimateDays is higher, I'd negotiate. I'd say, 'You are asking me to take a risk. But you aren't compensating me enough for that. You either need to reduce my risk by increasing the day rate by £X, or compensate me more for it by increasing the final payment by £Y.'

There have been some good discussions on fixed-cost work, search the forum for them. All the principles that apply to fixed-cost work apply here. You have partial day rate, partial fixed cost. The risk is lower than with complete fixed cost jobs, so maybe you don't need a 25% margin for error, but that's what I've used when bidding a fixed price.

If you can get rid of the 'top up bonus' terminology and instead call it 'fixed fee at completion' or something like that, this is very positive for IR35. It's the way businesses operate and can help you argue that you are in business for yourself even when other contracts might come under scrutiny.

[PTP]

Agree with everything WordIsBond said and like the logic

Here's a similar situation I faced when I was a nervous, naive, newbie ..... and I still don't undersand why QDOS said what they did

I was naive enough to fall for what I bet was an agency trick of them saying "The client would like to offer you the gig but weren't 100% sure about some of your answers so are offering £50/day less than the rate you were submitted at".

So I said in that case I'd like something in the contract that says if it goes beyond 3 months then the rate goes up to the rate originally submitted at - because they will obviously know by then whether they're happy.

QDOS said that would be like employment and inside IR35 because it would be like a payrise.

Whereas I see it as the equivalent of "Special Offer: 10% off for first 3 months"

[fidot]

Also make sure the situation where the client terminates the contract early doesn't invalidate payment of the completion fee.