IR35 alert over Lloyds-style offers for 'non-essential' contractors to accept less work

A second status adviser to contractors is alerting that covid-19 working arrangements could cause complications under IR35.

Previously seconded to the OTS to advise on the rule, Rebecca Seeley Harris warns that a three-day week for contractors – like Lloyds is implementing, may have IR35 repercussions.

Although the bank now only uses contractors who use umbrella companies, other engagers who follow Lloyds’ lead risk exposing their PSCs to Control and Mutuality, the adviser says.

“If, as a PSC, your new three-day week is based on your existing project, it may be a legitimate move,” began Seely Harris, the founder of Re Legal Consulting.

“But, if such contractors are being shifted from non-essential projects to essential projects, this would ordinarily not be acceptable [for an outside IR35 position] due to Control and Mutuality.”

'Non-essential work'

Her analysis comes after Lloyds said that, due to covid-19 impacts, it will reduce “non-essential” work; focus on “essential” work and “adjust [contractor] capacity to reflect this.”

But is not only Lloyds Banking Group which regards capping billable hours as a viable profit-protection strategy through coronavirus. In fact, Capita is also reducing contractor usage.

“Large companies who were never flexible…[with] working are now considering working less than five days per week” wrote a recruiter on LinkedIn, in a thread about covid-19.

“Flexible on the hours of work [means being] focussed on delivering [the] work as promised; [less on what] the hours [are]”.

'Rather than lose contractors'

“We’ll need to work with you to implement these changes and determine how they work in practice,” Lloyds told its contractors in an internal memo obtained by ContractorUK.

“There won’t be as much work for some of our contractors as there was…[but] rather than lose you, we’re asking some of you to reduce your working hours for initially three months.

“[This is to reflect] the decrease in our [non-essential] change activity,” the memo adds. “Typically, this will be a reduction to the equivalent of three days over a five day week.”

'Better than no days'

IR35 adviser Kate Cottrell, who last week said the government’s contingency worker guidance may store up problems under the rule, says Lloyds’ contractors are likely pleased.

“Three days has to be better than no days, and infinitely better than 80% of the National Minimum Wage [which these umbrella contractors would get if the bank furloughed them]” 

“At least this takes away the currently crazy situation, where contractors engaged via many umbrellas are still not sure if they will receive any official financial help with covid-19.”

Cottrell implied that only if Lloyds was using PSCs could the 3-day week be an IR35 issue, as then PSCs might be seen as ‘part and parcel’ enough to be moved to ‘business as usual’ tasks.

Similarly, a former tax official has said that accepting work which crops up rather than what was contracted for warrants a four-star IR35 risk rating, due to Mutuality and Financial Risk.

'No safety net'

As to other financial pain for Lloyds contractors, a tech staffing boss says: “This [3-day week] is bad news for those contractors [who wanted to keep contracting during coronavirus]

“But it’s better than being let go totally, which is the other option Lloyds had. That would have left most [contractors] with no safety net at all, as most would fall outside the government assistance initiatives with little chance of getting a new role right now.”

Another IT recruiter, currently furloughed, confirmed last night that new opportunities are indeed few and far between, except for those with key public service providers.

'Blanket hiring ban'

“Most companies have just put a blanket ban on all new hires, contract or permanent.

“However there are some exceptions -- two of my customers were utility companies and they were unaffected, as they are essential to public wellbeing.

“We are also a large supplier of IT to the NHS and that’s also continuing with contract hiring,” the recruiter said.

“But all non-essential industries did what they always do in uncertain times -- impose a blanket ban on hiring.”

'Breaking point'

Flexible staffing specialist Andy Hallett, a former director of SThree sounds concerned for contractor job agencies. Addressing end-users in an online post, he said:

“It's all very well preserving your cash, but if you drive your core suppliers out of business who you rely on to pay your contingent workforce, you may not have a business to return to.”

Further reflecting after CJRS racked up 140,000 applications in its first afternoon, the boss of Recspand also said: “My big fear for the staffing sector is that a number of  firms will be at breaking point at the end of this month.

“Companies who run monthly payrolls for both their internal and external staff will really feel the pinch at this point. While the deferring of other tax payments is welcome, the government need to ensure that the money is made available quickly to pay.”

'Contractors in a difficult position'

Umbrella contractors (serving Lloyds and other clients), and PSC contractors will also need that money available, if the bank’s three-day week model is adopted by other engagers.

As to the options for contractors if they do receive a Lloyds-style, 3-day ultimatum, Kevin McLaughlin, group commercial director at staffing firm First Point Group advises:

“The individual consultant typically has the option to accept the material change to his or her working days, or the contract will be terminated at the end of the notice period.

“Given the current crisis, [such an offer of an enforced furlough] puts contractors in a difficult position. Accept the reduction to your working days -- and monthly income, or start looking for a new contract in these uncertain times.”

'Please don't discuss these changes'

Told that the Lloyds ultimatum, in particular, requests of contractors, “please don’t discuss these changes more broadly in your team”, Mr McLaughlin was unimpressed:

“The bank’s desire to keep this quiet betrays a greater understanding that such optics during the pandemic fly in the face of the government’s loudest message -- that we are ‘all in this together.’

“This is particularly relevant given the fact that Lloyds and all the other major UK banks were bailed out as a result of the 2008 global financial crisis.”

He added that, aside to any potential complications for some workers under IR35, reductions to work days or weeks may have implications for others under the Agency Workers Regulations.