Regardless of your political leanings, I think most people can agree that governments worldwide often pass laws and regulations that have unintended consequences and create new problems without fixing the ones they were designed to address.
One example of this is Prohibition in the United States, which led to a drastic increase in not only organized crime but in ordinary citizens breaking the law, simply by having a drink. The UK government’s new Off-Payroll rules are another example of this. There have been unintended consequences in the public sector, and no one really knows how they will impact the private sector when the rules are inevitably rolled out to it. After last week’s announcement in the Budget that the government will consult in 2018 about IR35, this looks to be just around the corner.
To recap, these rules have been deployed this year in the public sector and have meant that the end user of the contractor (i.e. the public sector body who is, in this case, the client) was forced to pay statutory costs for contractors, and these contractor workers have been taxed as PAYE workers. In theory, this has meant that contractors who continue on assignment will see a reduction in take-home pay. In reality, evidence points to two things happening:
- The end user has had to increase the amount paid so that the contractor keeps the same take-home pay or
- Contractors have terminated their assignment.
If the former is the case then, overall, the government is no better off as increased tax revenues will have been offset by increased costs paid out by end users. If the latter is the case, then the public sector and, by extension, the public, will suffer as work will simply not get done. Evidence points that a lot of public sector projects have actually seen contractors leave – a recent survey suggested 76% of NHS IT projects had seen contractors end their assignment. As a result, there is lot of uncertainty as to how this will roll out to private sector. As with any new rule, it’s difficult to predict what will happen. If the government tries to push it through, one almost inevitable outcome is that contractors will not necessarily end up paying tax but models of engagement will change. It is highly likely that this will lead to more SOW engagements and a focus on fixed price engagements (at least on paper) rather than ones paid on a daily or monthly basis to try and ensure contractors are not classified as employees for tax purposes.
While there is a lot of uncertainty, what is certain is that clients will need total visibility into their workforce. This is where Beeline can help. We already have many clients who have fields within the system that denotes the classification of their workers, as this is a standard part of any Beeline implementation. Additionally, Beeline’s trueRATE functionality is critical in this aspect. It enables clients, on an assignment-by-assignment basis, to show the various different components that apply to rates. They can therefore show which statutory costs are being deducted and charged, and this gives the client an easy way to meet audit and regulatory requests to show the appropriate taxes have been paid. In addition, any client that is not already looking at managing the population of their workforce managed under SOW should be. One of the many reasons for managing SOW is visibility. At almost every client who has rolled out SOW, we have found hidden contractors billing on a T&M basis. If this new regulation applies, clients will need to be sure that every contractor working for them is classified and managed appropriately—and Beeline’s SOW functionality facilitates this (and much, much more). If you’re interested in learning more, please reach out. We’re glad to talk.
This blog was published on 29 November 2017.