Outside IR35 tips for end-clients who want no truck with the off-payroll rules

Now contractors are operating with my top tips on how THEY should act when outside IR35, it’s only fair end-users should get some tips of their own when engaging us contractors outside the off-payroll rules, writes Chris Sebok of Shadow Moses Developments Ltd.

Contractor recruitment agencies would do well to read this article too. Even internal recruiters.

Got tied IR35 status hands? Read on, nonetheless

Indeed, many hiring managers might feel that their IR35 status hands are tied by their employer. But with some basic changes in mindset, contractors can be engaged on a commercial basis, and hiring managers can avoid being disappointed when the contractor’s in-business, autonomous conduct doesn’t match expectations or the inside IR35 label handed down by the manager’s higher-ups.

If you’re a hiring manager whose company has enforced a blanket ban on limited company suppliers, then I’m sorry about that. While this decision will kick the IR35 can (away from you and) down the road for a while, it carries its own risks. And it’s certainly not a long-term strategy if you want to avoid project tumbleweed or mothballing.

Blankets, jiffies, dos and don'ts

Blanket bans will mean both you and the company miss out on some of the best talent available, and when those contractors find an outside IR35 role (which they will be looking for), they’ll be off in a jiffy.

Before I share my outside IR35 tips for clients wanting no truck with the off-payroll rules, a quick reminder –I’m not a legal or IR35 expert; I provide practical operational advice based on 25 years of experience running my own businesses and successfully contracting.

So, here are my ‘dos and don’ts’ for end-clients and hiring managers intending to engage legitimately outside IR35 contractors:

1. Treat the contractor like a business from day one

A contractor is independent. They run their own business. They are likely to have multiple clients and will have worked in a much wider range of industries than any other type of worker, including higher-ups at your company.

Respect this by limiting any employee-like treatment. Most contractors have seen it all before, and – although it is unfortunately a big part of being a contractor - fighting against being treated like an employee is sure to only frustrate both sides and strain the relationship.

2. You’re not giving the contractor a ‘job’

Don’t write out a ‘job description’ or give the contractor a ‘job title;’ both those things are their responsibility, not yours.

You’re offering work – project work on a B2B basis – and you need to focus on defining the deliverables for that work. Any savvy contractor will look at what they’ve done for you and use this to write good marketing material and case studies to win future work.

Make sure that both parties clearly understand the scope of the work that is required; agree and write up a Statement of Work, sign it, and stick to it. Make sure that the real-life relationship is represented in the contract and schedule.

3. Be prepared to pay more for more work

A contractor is running a business, and their primary commodity is their time and skill. You want both. However, don’t expect a contractor ‘in business on their own account’ to give you extra time for free, even if you are aware of the latest IPSE-Workwell findings!

A ‘professional day’ is highly subjective, and – in this contractor’s view – should be expunged from any legitimate B2B contract. If you want to pay an hourly or daily rate for work completed, expect to pay more if overtime is required, though doing this should be at the contractor’s discretion.

4. Fire at will

If you feel like a contractor is not pulling their weight, or their work is not up to scratch, then - as you would with any service provider - engage with them and give them the opportunity to rectify things. There is no ‘disciplinary process’ here; they are not an employee, so just reach out.

If they fail to improve - and you’re being reasonable - then terminate the contractor. If it’s serious enough, you could follow up by seeking damages for breach of contract. A contractor should always be professional and should be insured to cover this kind of scenario.

There is very limited risk in getting rid of a contractor, and if they are incompetent, even less risk.

Of course, I would always recommend taking legal advice before any action – to contractors particularly.

5. Go easy on extensions and if you lose count, you need a retainer

Not all contractors care about contract extensions, but most tend to care about Customer Relationship Management! After all, us contractors are here to help your projects succeed (albeit on a relatively short-term basis). Yet we are not part of the furniture. If you find yourself heavily relying on a contractor, then put in place retainer agreements that allow you to draw on their skills in a limited way.

Don’t keep offering extensions just because you’re worried about losing them; if there is no clearly defined work or goal, then a contract resource is probably not the right choice. Just keeping a contractor around, as you would a full-timer, is a signpost towards ‘inside IR35.’

6. Prioritise the contractor’s paperwork

A seasoned contractor will have their own contracts, SoWs and NDAs.

Larger clients may have supplier contracts. Which one to use is a balancing act, but bear this very important point in mind; contractors are providing you with their services. The vast majority of professional organisations that offer services provide their own terms and conditions which you must sign to engage them.

My strong preference is to use my own contract, as I have spent a lot of time and money defining my services, which I deliver to my clients on my company’s terms. Yes, there is always some negotiation involved, but this process should ideally always be driven by the contractor.

Unfortunately, this is a foreign concept to many contractors nowadays. Instead, and perhaps trying not to rock the boat, they default to using client-provided contracts, which – in my eyes – is completely insane. Imagine a builder expecting you as a homeowner to produce a contract for them to build a new garage extension, or a solicitor asking a client to put together the letter of engagement and terms?!

I suspect the contracting industry has ended up in this mess because of the involvement of recruitment agencies, which generally provide contracts to both parties.

7. You’ll manage

You don’t need to monitor or manage a bonafide commercial IT contractor like me, or my many thousands of contractor counterparts!

There’s no reason to tell a contractor how to complete the agreed services. They don’t always need to be in the office to do their job – let them decide when its best to come in.

They just need to know what to deliver, and when it’s due. They are not under the same terms as your employees.

It is their responsibility, as the service provider, to fulfil the terms of the contract, and while you may feel that you are mitigating risk by attempting to control or manage them, this treatment is unacceptable on multiple levels. Including, chiefly, the HMRC level if you’re meant to be engaging on an outside IR35 basis.

8. Don’t pay contractors for doing nothing

If an outside IR35 contractor has nothing to do, don’t offer to pay their invoices. The contract may state “37.5 hours per week” or “7.5 hours per day”, but there is no Mutuality of Obligation (MOO) for you to provide the contractor with work - or for the contractor to accept work - outside of the original agreement.

Yes, they might start looking for clients elsewhere, but that’s a risk you must be willing to take if you’re not able to organise, negotiate and agree work in a timely fashion. Business is all about risk, and that applies on both sides of the fence.

Fixed price contracts ‘solve’ this issue, but at the same time introduce a considerable amount of complexity in engaging a contractor.

9. Don’t find a contractor something to do (or think they can do similar work that crops up)

This follows on from the previous section (8), and the rationale is the same -- as is the few points it would unfortunately give to a scrutinising HMRC!

Work that crops up, or additional tasks you think the contractor could do for your company, they should not do, and cannot do. Or at least, they ought to decline to perform any activities or works not contained in the original outside IR35 agreement without a discussion; a negotiation (including a new, separate price) and a new contract (potentially including a schedule). We contractors can’t just be moved about -- WE ARE NOT EMPLOYEES!

10. See the contract, and truly understand its ins, outs, and implications

Make sure you have visibility of the contract and take it seriously.

Outside IR35 limited company contracts generally include terms for Mutuality of Obligation (MOO), Supervision, Direction or Control (SDC), subcontracting and substitution. If you’re not happy with any of these things, then make sure this is discussed, and the contract is altered appropriately.

Enforcing a ‘no substitution or subcontracting’ clause is not an automatic inside IR35 pointer, as long as you otherwise grant the contractor complete autonomy over how the services are provided.