Which Model Will Your Contractors End Up In?
As an agency, you have the least amount of control over the impact of IR35 – despite having an equal amount to lose. What’s more, come April 2020, you’re the one holding the bag in the event of getting the Tax and NI payments wrong. From 6th April, it’s partly your responsibility to communicate to contractors what their clients are classifying them as and pay any tax – and penalties.
It’s for this reason, that you need to not only understand IR35 but also educate your contractors and clients. You need to know how clients and contractors plan to approach the changes and your clients need to decide how they will assess each contract. Once you know that, you can start to put some plans in place!
As we saw in the Public Sector roll out, when not given enough time to act there’s a mad rush for contractors to find the right home for them from April….This time we’ve had more time to prepare and as such can get ahead of the curve!
So…..which payment model will be best for your contractors?
For those lucky enough to have passed an IR35 assessment, you can consider paying the contractor through their LTD company in gross. It is advisable however to be fully comfortable that you agree with the decision the client has made.
If paying contractors into their LTD company you may want to consider your contractors take out IR35 insurance with the likes of Kingsbridge or Markel.
Potentially the worst result for all stakeholders. The contractor suffers a reduction in their take-home pay whilst receiving no real benefits or opportunities to retain more of their income, the client potentially loses key talent and the agency will no doubt have to increase their back office and employment related costs to cope with the increased payroll demands.
However, the likelihood of PAYE being the preferred model for ‘permies’ in all but name remains high. HMRC penalties and a lack of expertise in-house have resulted in many end client hirers who deal with PSCs creating new ‘blanket bans’ on engaging LTD companies, therefore avoiding the responsibility of judging each contract on a case-by-case basis. Most end clients are however saying that they will accept either PAYE or Umbrella (a form of PAYE).
Sainsburys are one such company. In January 2020, the supermarket giant announced that their contractors will no longer be allowed to use PSCs – despite 31% of their contractors currently falling inside IR35.
With HSBC, RBS and Santander set to follow, it could be argued that the only organisations capable of mitigating talent losses are those able to compensate with higher salaries.
There is a solution that rewards all three parties evenly – a compliant umbrella organisation. By absorbing responsibilities traditionally left in the hands of the contractor, agency or end client, they’re an effective way to be compliant and maintain business as usual.
As a genuine employer of the contract worker and payroll service provider, umbrella companies calculate and deduct the correct levels of PAYE and NIC contributions in line with HMRC rules on behalf of contractors and give the supply chain confidence that the correct deductions have taken place.
While this method does mean that contractors may take a reduction in their take-home pay than via their own LTD Company, the umbrella organisation should provide employee benefits as well as offering the stability of one single employer, employment rights, better insurances, the option to pay more into their pension via salary sacrifice as well as consider certain allowable expenses in line with HMRC legislation. Contractors will still maintain their flexibility and self-governance – and will be compliant in the eyes of HMRC.
And, agencies can use the benefits that umbrella organisations offer to attract and retain top talent without having to build back office and employment related costs into your budgets.
At Workr Umbrella, we go a step further. With our award-winning umbrella services, we reward contractors with a whole host of benefits including £675 a year cash towards dental, optical and physio treatment as well as a confidential counselling and wellbeing hotline. We do more than offer stability. We supplement loss of earnings with legitimate support – support that can improve your skill set and widen your client base.
So, what are you waiting for? Get in touch today on 0208 10 60 000 and IR35support@workrgroup.com.