Impact of IR35 in the Private Sector

March 8, 2019

With IR35 set to be extended to the private sector in 2020, we assess the impact it will have on attracting and retaining talent in the private sector with Gemma Macdonald, Chief Operations Officer at Capita Resourcing.

Today with IR35, it’s fair to say there are some ‘known knowns’ and ‘unknown knowns’. Our industry, along with others, has completed the consultations - but how our recommendations shape the final legislation remains to be seen. Capita has got a good view, and here’s how we see IR35 impacting on the private sector.

It’s worth noting that during the budget a couple of announcements were made, an interesting one being that IR35 would likely not apply to SMEs. Great news if you’re at the small or medium end of the scale, but maybe not so good for large businesses. 

Gemma Macdonald, Chief Operations Officer at Capita Resourcing explains; “Are we missing an opportunity here. By only applying IR35 to large businesses, effectively the government continue with a two-tier system where businesses can’t compete fairly for talent. We’ve seen how the legislation played out in the public sector. There was a fear that talent would shift to the private sector – a fear that our analysis of the data supports. Immediately after implementation, we saw the population of contract workers shrink by 15%. It bounced back after six months, but what was the effect of not being able to access the skills needed in that time period? One organisation absorbed the costs and faced an additional 12% uplift in costs; a bitter pill for business to swallow.” 

Talent flight is a clear risk for large business. As are spiralling costs. If a business chooses to hold their rate card, contractors will find that they’re no longer getting the returns they’re looking for and they will leave the talent pool. Accessing the right skills will inevitably become more expensive for large employers in the Private Sector. If they’re not willing to pay more, they’ll see a decline in the skills they can attract to their sector. 

The second thing we learned from the Autumn Budget was that the date of implementation would be pushed back to April 2020 in order to give businesses more time to review contracts and make any necessary system and process changes. Unlike with the public sector, time is on their side. So, why aren’t businesses more prepared? 

IR35 has been on the horizon for a while, and actually in play in the public sector. The feeling is that IR35 is now well understood, with readily available learnings around it. But unless a business has audited their workforce fully, understood both the immediate or potential implications for their products and services and identified experienced partners to support them as they transform their workforce in line with the legislation, they run the risk of being non-compliant. 

Gemma comments: “We need to educate businesses about auditing the purpose of engaging talent. The purpose is the key here. Why do they need that talent? If we understand the purpose, we can create a problem statement and use that to help facilitate the appropriate decision. Maybe it’s an employed consultant, maybe it’s a contract or temporary worker, maybe it’s a statement of work project. Ultimately, we will need to support organisations to create and implement the right strategy including talent pools that are flexible enough to meet the demands of their problem statement.” 

Capita Resourcing is well-placed to support employers. We provided consultant and implementation strategy to over 120 public sector organisations to ensure their transformation in response to IR35. This included over 7,000 workers in the public sector. We’re engaging with employers directly, publishing notes on the action being taken, facilitating ‘knowledge-sharing communication plans’ and providing user-friendly resources like decision trees. All the while, we’re giving process and technology management advice. 

There’s been at least one major piece of new legislation every year for the last ten years that we have had to implement. Capita has always led from the front. Take pension auto-enrolment for example; we successfully applied that to our 70,000+ workers, proving our experience at scale as one of the very first organisations in the UK to apply the requirements.

Gemma sums it up well. “We [at Capita] understand IR35 better than most. We’ve got a solid view on how these legislative changes are going to apply and what the impacts are going to be on the workforce. We’ve got a 12-month window now to help organisations really focus on their individual strategies and approaches to make sure that when 2020 comes around, they don’t face a skills gap.”

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