Before I begin, I want to preface this article by saying that I am writing in reference to contractors in the UK software development industry.
For anyone who works as or with a contractor in this industry, you will have encountered the viewpoint that they are often viewed as temporary employees, whether consciously or not. They are “recruited” into a team, managed by the client. They attend the usual planning meetings, regular stand ups and sometimes even corporate events. They are expected to complete the work assigned by managers in the client company, and continue to do so for the duration of their contract. All too often, they are expected to complete the duration of a contract until the client no longer wishes to extend them. Ignoring the benefits, this model leaves contractors undoubtedly treated as an employee. Something HMRC are trying to crack down on with their IR35 legislation (more on that later).
I am part of several groups of contractors, some of whom have complained about this perception periodically and in reference to different aspects. More recently, especially since the announcement that the changes to the IR35 legislation that were brought into the public sector in 2017 were going to be rolled out to the private sector in April 2020, these conversations have pointed out the misguided terminology used to refer to contractors – often in job descriptions and by recruitment agencies.
It is because of all of this that I want to take this opportunity to express my viewpoints on the matter and a different approach that I would like to propose we take in order to mitigate issues here.
What terminology are you talking about?
Let’s begin by talking about the terminology used at present. Words such as “candidate” and “team member” are indicative of jobs for employees. But it goes beyond just the terms used. Judging a contractor by CV or technical test, interviewing the individual and quizzing them on basic technical questions in an attempt to gauge their technical competency; all of these approaches are what an employer would look to use to assess the capabilities of a candidate applying for employment.
Recruitment agencies and client companies alike also often begin conversations and job descriptions with an in-depth analysis of the client company. They describe why they are a great company to work for, that they are listed in the FTSE100 or have an onsite gym.
Would you take this approach when hiring a builder, or window cleaner?
What image does this give?
If you take this approach, write a job description with these words, “interview” a potential “candidate” to see if they are going to be a good fit for your team; are you looking for a contractor (someone who effectively operates as an independent consultant through their own business), or an employee?
With the Government and HMRC trying to catch out the select few who are still trying to work through a limited company but as an employee, operating with these approaches and using this terminology almost justifies the IR35 changes. All of these approaches are the same that an employer would use to recruit a permanent member of their team and a good fit for the company.
IR35 aims to penalise those who are still employees but operating through a limited company. Using this model allows “contractors” and their “clients” to bypass various taxes and employee benefits, such as employer pension and National Insurance contributions. HMRC aims to catch these individuals and companies and charge them additional tax to try to compensate. Many believe their approach to punishing people with this kind of tax is wrong. It leaves many legitimate contractors stuck using the same broken model, paying more tax than their employee counterparts (when corporation tax and VAT is considered), but losing all employee benefits that an employer must provide.
What is wrong with this?
Contractors are different and should be seen as such. They are legitimate businesses, not employees. They are providing a business service to a client. Assuming a contractor is adhering to the IR35 legislation, then their contract with the client (either direct or through a recruitment agency) will include a clause that allows the contractor business to substitute the contractor with someone else of comparable ability. If that were to happen, then any interviews, technical tests and CV reviews would be irrelevant as they would have been for the original contractor and not the substitute. This substitution could take the form of another consultant employed within the contractor business, or the work being subcontracted to another business.
If you were to employ the services of a building contractor, you wouldn’t test their skills before hiring them. You would go off their merit, reputation in the area or industry, or their showcase of previous work or testimonials. After all, the person who quotes the work may not necessarily be the same as the person who completes the work. The same could be said for paying for the services of a consultancy, such as Infinity Works or AND Digital. They are businesses who identify the requirements of a client company, build a team of competent technical consultants, and send them in to handle the project from start to finish. As a company, you would have a level of trust in these service providers to complete the work to a good standard. If they did not, you would terminate the contract and look to claim compensation for it.
Contractors are the same. The only difference is that they are normally independent consultants as they are usually the only individuals employed within their business. In this scenario, you are going to be hiring them based on their reputation and often they are recommended by word of mouth.
So, what can we do?
Change the terminology. This responsibility should lie with everyone.
Client companies to understand they are not hiring employees; they are employing the services of independent consultants. Avoid trying sell the benefits of your business. Avoid reviewing a CV or interviewing a “candidate” to determine how well they will fit as a member of your team or company. Instead, assess the business' technical competency and skills by any portfolio and testimonials. Avoid trying to stipulate working hours or working location (unless the location is mandatory given the nature of the work – the majority can be done anywhere, given trust). Instead, view contractors for what they are: a business providing a service you are buying.
Recruitment agencies can also help here. Agencies and agents have put in a great deal of work to help educate clients and contractors alike on the implications of the IR35 legislation changes in the last year. This is an effective position to be in as they are close enough to both clients and service providers that they can help to educate all involved as to how this type of business relationship should be structured. The language used in job descriptions can also be updated: remove reference to “successful candidates”, give more detail on the service and skills required and less on what the company does or why they are great to work for (contractors do not “work for” the client company).
As for contractors, you can help to educate agencies and clients. Conduct yourself as a business and explain to others what that means. Treat your clients as clients and foster that client relationship. After all, these relationships will help to grow your reputation within the industry; thus, removing the need for evaluation by CV. Produce a portfolio of your work and collect testimonials from past clients, so that potential future clients can assess the quality and relevance of your service. Most of all, be clear how you operate and what service you offer. Be clear how you are different from an employee.
It is clear that there needs to be a shift in how we all work. We can’t make these changes without all working together. To ignore this, would be to accept the changes IR35 aims to bring, which could be a risk for everyone. Working together to foster this progression will build better relationships all round.