Contractors’ Questions: Will a new IR35 affect contractors or temps?

Contractor’s Question: ‘Temp’ or ‘contractor’ – what’s the difference please? I notice some ‘contractors’ disliking the ‘temp’ label. But isn’t it all rather a moot point because if IR35 changes in the private sector, it’s going to make life very difficult regardless of whether you call yourself a temp or contractor?

Expert’s Answer: There is often a lack of clarity when determining the differences between contract and temporary workers and this is largely because the terms are interchangeable, often used by clients side-by-side. And often by agencies when describing any hire that is not permanent.

But there are Fixed Term Contracts (or ‘FTCs’), and these are for a defined period, typically paying the contractor on a pro-rata salary. However a temp or daily rate contractor will often be paid through a third party such as a consultancy or agency.

Meanwhile, a short term temporary assignment will often require less rigorous ‘due diligence,’ due to the nature of the work, than a longer-term contractor with more seniority. It may be the case that, by calling them temps, some senior contractors dislike the implication that their work is not of a senior level.

As regards your final question, it is true that the recently introduced IR35 regulations to the UK public sector could transpire to be a game-changer, and not for the better. The government will imminently be making an announcement on the timings and impact this could have on the private sector, as you suggest. So the landscape for the hiring of contract professionals as limited companies could change dramatically, and organisations may well have to hire through ‘Statement of Works’ to adapt to the new regulations.

Statement of Works (SoW) is a product / service that we (and some other agencies) provide to end-users to deliver an ‘outcome-based solution’ at a fixed price. Costs are agreed at the start of the project and payment is based on specific milestones and objectives being achieved. This differs from ‘Time and Materials’ contracts where individuals or teams are supplied on a time or assignment period, and the client manages the resources typically on an hourly or daily rate. The advantage of the SoW is the project or assignment of work can be managed by a practitioner, with the team and the project manager supplied.

So if you are considering entering the market as a contractor any time soon, it is vital that you understand the potentially new IR35 legislation that might impact the commercial market in the coming year. However, regardless of all the uncertainty over IR35 and Brexit, there is still today a vibrant and healthy contract market. In the past, that market has proved to be adaptable. We’ve no reason to doubt that this adaptability is going to dramatically reduce, so now – a time of risk but also opportunity – could actually be a good time to start out as a contractor.

The expert was Hamish McCombie, a director at recruitment specialists Morgan McKinley.