Blog Layout

IR35: Solutions

IR35: Solutions

If having applied the status determination test you conclude that an individual is caught by IR35 and is really an employee, you need to decide what to do next. There are several options that we consider in more detail below.


1.      Do nothing

 

This is not advised. If HMRC decides to investigate your business, liability to pay NIC etc will sit with you as the end client, not the individual or his/her personal service company (PSC).  Moving the liability to the end client is the main change in April 2021 (albeit to medium and large businesses) whereas, currently, liability sits with the individual or his/her PSC.


You also face the risk that the individual will, at some point, claim to be your employee or worker and, if so, there will be liability for things like holiday pay and/or unfair dismissal.


As ever, burying your head in the sand is only likely to worsen the problem. The more time that passes, the bigger the liability/problem will become.


2.      Make the individual an employee


This is perhaps the outcome HMRC wants, some might say so it can collect more tax, but doing so has some significant practical considerations.


The individual may not want to be an employee but prefer to find some alternative solution where s/he can keep flexibility. Seeking to change their employment status may see them cease their relationship with you.


Your liability will increase significantly, as you will be required to treat them consistently with other employees; providing benefits (including pension), holiday and paying employers’ NIC (13.8%), so are realistically looking at a minimum 20% cost over and above their basic pay; assuming you are able to avoid any increase in their gross pay.


It is probably wishful thinking to expect a contractor to agree to continue working for you at no additional cost to you. This would see them suffer a massive reduction in pay and so is unlikely to be acceptable to them. 


Probably the biggest issue for the individual will be a potential reduction in net pay. Even if you agreed to maintain their contractor rate as their gross salary and you absorb the additional on-costs to you (say, 20% as above), the individual would face a reduction in net pay as they would not have the benefit of operating through a PSC. As such, are you prepared to increase their pay so they end up in the same net position? This will be a very expensive option. Further, where contractors are usually paid more to offset the lack of benefits and security, paying them more (or even maintaining their pay) is likely to put your pay scales out of kilter, and could create equal pay issues.


There is also an issue if you conclude the individual is an employee (or worker), the terms of ongoing employment cannot be agreed, and the relationship ends. If so, having concluded s/he is an employee, you risk a claim in the employment tribunal. You will have openly accepted the individual is an employee and they may decide to claim for unpaid holiday pay/pension/other benefits and/or unfair dismissal. As such, great care needs to be taken with this approach if this is your preferred option.


3.      Require them to operate through an employment agency or umbrella company. 


This should mean you can ignore IR35 provided you know they are employed by the agency/umbrella company.


However, while a safer option, this is probably the most expensive. The agency will be forced to pay employer’s NIC and provide benefits (pension as a minimum) and holiday. As such, it will charge all those costs to you. In addition, it will want to make a profit, so there is likely to be an additional fee on top, which you will have to pay. If they are provided to you via an agency, you will need to meet your obligations under the Agency Workers Regulations, which includes rights from day one and again after 12 weeks.


The same considerations above in point 2 also apply; will you seek a reduction in the individual’s pay to minimise your exposure and risk losing the contractor, or will you agree to match their current rate. 


4.      Change how the individual is engaged so s/he falls outside IR35.


This may not be possible. If it is, it is likely to see a change in how you operate and potentially how much control you can exercise over the individual.


It may mean you require them to provide equipment or take greater risk, it could be that they are encouraged to work for other businesses, however, if they are specialists, will you want them working for a competitor? Is it practical for them to have an unfettered right to supply a substitute? If not, you will have to impose some control over how/what they can do and who they can substitute.  Such control could be fatal to showing they are outside IR35.


Much like a change in their pay may see them earn less, a change in the working relationship may see them worse off or working in a way they are unhappy about.


While you can load indemnities into the contract, particularly around tax, ultimately, HMRC will look to you to pay tax/NIC in the event the individual is caught by IR35. If an individual remains working solely for you on a full-time basis, it may be hard to show s/he is not an employee.


If you are going to proceed with this option, there are some things to consider in both the contract you provide and the working arrangements that apply:


  • Allow the individual an unfettered right of substitution,
  • Allow them to set their own place of work and working hours,
  • Try not to integrate the worker into your work force; at least, not too much,
  • If possible, ensure the individual takes some risk and/or provides their own equipment,
  • Give them the right not to accept work and, ideally, have a mechanism of recording when work is either requested and refused or offered and refused,
  • Build in tax indemnities, and
  • Require them to have their own insurance.


While the contract can be used to portray the individual as self-employed, you need to ensure that the above reflects reality. All too often judges put the contract to one side and want to know how the relationship worked in practice; we suspect HMRC will be the same. Therefore, the contract should reflect reality and you should ideally find a way to demonstrate the terms reflect what happens in practice.


If any of the issues discussed above are a concern to you, or if you would like specific advice, please contact the writer, Matthew Kilgannon, via mk@kilgannonlaw.co.uk or on 01483 388 901.



Kilgannon & Partners LLP is a specialist employment law firm where our experienced employment law partners offer practical, prompt and professional employment law and HR advice.



15th February 2021. © Kilgannon & Partners LLP



A man is sitting at a table reading a letter.

Gerard Airey and Courtney Step-Marsden succeed in statutory redundancy pay claim

By Gerard Airey • 22 Mar, 2024
Gerard Airey and Courtney Step-Marsden succeed in statutory redundancy pay claim - The Claimant was entitled to refuse an offer to take a lower-ranked role within a very large project
a man is writing on a piece of paper with a pen .

2024 Employment Law Updates: What You Need to Know

By Matthew Kilgannon • 20 Mar, 2024
Every April, the Government reviews and makes changes to employment laws, including a review of financial rates. Below we set out a summary of the proposed changes coming into effect in April and beyond.
a man in a suit and tie is sitting at a table with his hands folded .

New Partner Announcement - Welcome Dominic Holmes

By Matthew Kilgannon • 20 Mar, 2024
We are delighted to announce that @DominicHolmes has joined us as a Partner. Dom has over 18 years’ experience advising employers and senior executives on strategic employment law issues, including several years leading the highly-regarded employment team at Taylor Vinters.
a man in a suit and tie is sitting at a table with his hands folded .

Marianne Wright Promotion to Senior Associate

By Matthew Kilgannon • 20 Mar, 2024
We are thrilled to celebrate Marianne Wright well-deserved promotion to Senior Associate!
a man in a suit and tie is sitting at a table with his hands folded .

Kilgannon & Partners and Just Employment Solicitors have joined forces

By Matthew Kilgannon • 20 Mar, 2024
We are excited to be able to share the news that Kilgannon & Partners and Just Employment Solicitors have joined forces. This has enabled us to further strengthen the firm and create one of the largest boutique employment and immigration law firms in the UK.

Demystifying GDPR: A Comprehensive Guide for UK Employers

By Emily Kidd • 26 Feb, 2024
The General Data Protection Regulation (GDPR) has been a game-changer in the world of data protection, and its implications for employers in the United Kingdom are substantial. In this comprehensive guide, we will demystify GDPR, exploring its fundamental principles and the profound impact it has on the workplace.
a man in a suit and tie sits at a table with his hands folded

We are delighted to have succeeded in an appeal against HSBC Bank PLC for the Claimant, Ms Chevalier-Firescu.

By Matthew Kilgannon • 12 Feb, 2024
We are delighted to have succeeded in an appeal against HSBC Bank PLC for the Claimant, Ms Chevalier-Firescu. The EAT has agreed with our arguments advanced by @Elaine Banton of counsel, that the Tribunal was wrong to strike out her claims. The matter will now be remitted to a differently constituted Tribunal to decide how next to proceed with the case.
a group of business people are sitting at a table having a meeting .

Combating Harassment: Employer Duties under UK Employment Law Introduction

By Marianne Wright • 12 Feb, 2024
Creating a safe and respectful work environment is a fundamental aspect of UK employment law. This article explores the legal obligations placed on employers to address workplace harassment , highlighting the measures they should take to promote a culture of respect and protect their employees' mental health. Understanding Harassment Harassment in the workplace encompass unwelcome behaviour that violates an individual's dignity, creates an intimidating, hostile, degrading, humiliating, or offensive environment, and can have a detrimental impact on mental well-being. Such behaviour can be based on protected characteristics, including race, gender, age, disability, sexual orientation, or religion. Legal Framework The Equality Act 2010 is the key legislation governing harassment in the workplace. It provides a legal framework for protecting employees from discriminatory behaviour and sets out the employer's responsibility to prevent and address such conduct. Under the Equality Act 2010, employers have a duty to: Prevent Harassment: Employers should take proactive steps to prevent harassment in the workplace. This includes implementing clear policies, providing training to employees, and fostering a culture of respect. Investigate and Address Complaints: Employers are obligated to thoroughly investigate complaints of harassment and take appropriate action to address the issue. This may involve disciplinary measures, counselling, or mediation to resolve conflicts. Provide a Grievance Procedure: Employers should establish a clear and accessible grievance procedure that allows employees to raise concerns about harassment. This ensures that complaints are addressed promptly and fairly. Vicarious Liability: Employers can be held vicariously liable for the actions of their employees in cases of harassment. This means that employers may be legally responsible for the misconduct of their employees, even if they were unaware of the behaviour. Preventing and Addressing Harassment To effectively address and prevent workplace harassment, employers can implement several measures: Policies and Training: Employers should develop comprehensive anti-harassment and anti-bullying policies that clearly define unacceptable behaviour and provide guidance on reporting procedures. Regular training sessions can also educate employees on their rights and responsibilities. Promote a Positive Work Culture: Employers should foster a work environment that promotes respect, inclusivity, and open communication. This can be achieved through regular communication, team-building activities, and diversity and inclusion initiatives. Encourage Reporting: Employers should encourage employees to report incidents of harassment or bullying without fear of reprisal. This can be achieved by assuring confidentiality, providing multiple reporting channels, and offering support throughout the process. Swift and Appropriate Action: Employers must take prompt and appropriate action when a complaint is made. This involves conducting impartial investigations, providing support to the affected employee, and implementing disciplinary measures when necessary. Legal Implications Failure to address and prevent workplace harassment can result in legal consequences for employers. Employees who experience harassment may bring claims under the Equality Act 2010, alleging discrimination, harassment, or victimisation. If an employment tribunal finds the employer liable, it can order compensation, issue financial penalties, and damage the employer's reputation. Conclusion UK employment law places a significant duty on employers to address and prevent workplace harassment, recognising the impact on employees' mental well-being. By implementing robust policies, providing training, fostering a positive work culture, and promptly addressing complaints, employers can create a safe and respectful environment for their employees. Compliance with legal obligations not only protects employees' rights but also contributes to a productive and harmonious workplace where individuals can thrive professionally and maintain their mental health.
safeguarding employee data - image of workers in front of a computer

GDPR Compliance in HR: Best Practices for Safeguarding Employee Data

By Emily Kidd • 23 Jan, 2024
The General Data Protection Regulation (GDPR) revolutionised the way organisations handle personal data, and for Human Resources (HR) departments in the United Kingdom, compliance is paramount. This article provides a comprehensive exploration of best practices for HR to safeguard employee data and ensure GDPR compliance in the workplace.

Reasonable Adjustments in the Workplace: Supporting Employees with Mental Health under UK Law

By Yeing-Lang Chong • 22 Jan, 2024
Recognising the importance of inclusivity and equal opportunities, UK employment law mandates that employers make reasonable adjustments, where possible, to accommodate those employees who have a disability including those with certain mental health conditions. These adjustments aim to provide support and enable individuals to perform their roles effectively.
More Posts
Share by: