IR35 reform has led to a great many changes in the world of contract work. Some of these may be for the better, but others are a thorn in the side to contractors.
A recent IPSE poll of contractors found out something startling though. That almost 70% of contractors within the poll, only use an umbrella company for one reason. This is that their end-user, so their medium or large business they are working for, made them do it.
In most cases therefore it sounds like they were told it was a requirement, or they would not gain the work. Contractors, on the whole, have more experience of IR35 than the businesses which took over the role of categorising their status just over a year ago. That they feel this way, is telling.
A similar story is coming from the direction of LinkedIn, where they asked 122 users why they worked through an umbrella company. Almost three quarters ticked “I think I have no choice.” This is a stark figure indeed.
Back to the IPSE study, over 60% of contractors say that umbrella companies offer no advantages at all. No wonder there is an undertone of dissatisfaction around them. If you look within the figures, under an umbrella company, contractors end up losing out significantly.
There is the Employer’s National Insurance to pay, the Apprenticeship Levy if applicable and holiday pay in the day rate too. This can mean a sizable reduction in pay for contractors.
There is another side to this recently identified in our previous articles. Contractors can be made to work only with a Preferred Suppliers List (PSL) of umbrella companies. They may be ones with less favourable terms and higher costs.
Clarity Umbrella recently spoke out about one of their contractors. He was told to work with a company from the PSL or face 45-day payment terms. No wonder contractors are feeling aggrieved by the changes to IR35.
The bigger issue to this is that many contractors feel they are wrongly categorised inside IR35 by businesses. Perhaps businesses are attempting to mitigate against risk, but in the end, it is penalising contractors.
Let us remember that contractors offer a superb service to many businesses. Also there has been a drop off in available contractors during the last few years for several different reasons. Theoretically it means their skills should be in demand more than ever.
The challenges around IR35 reform are ever increasing. Given the disadvantages around choice and payment, some contractors may well begin to refuse to work inside IR35, no matter how good the client is. It certainly seems that there is huge variation between the way some clients operate as well as umbrella organisations.
IPSE will be sharing their findings directly with the government and a large part of this is contractor dissatisfaction. They are hopeful that the government will put forward new and improved recommendations to companies working with contractors. Whether this will happen though, remains to be seen.
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