From April 6th 2021 ‘off-payroll working rules’ were extended to the private sector. As a result the responsibility for determining a contractor’s employment status, and whether they are caught by IR35 legislation, now lies with the private sector organisation.
What impact does this have?
This was a controversial change when it was introduced in the public sector in 2017 with issues raised around the burden it places on business through to whether it deters business from using contractors at all – potentially limiting the external talents and skills it can access.
This access to talent is a critical issue as according to SAP & Oxford Economics Research around 42% of the total workforce within an organization is made up of external resources, which are vital for achieving business goals, flexibility, and innovation.
The reality of the impact on access to talent and skills was seen in the 2017 Public Sector Surveys conducted 6 months after the introduction of IR35 - 76% of the departments lost highly skilled contractors, 46% of the contractors demanded pay rises, labor costs increased by up to 30% and 71% of IT projects hit delay with some being scrapped altogether.
What opportunities does this create?
Leading organisations are leveraging the investment they have made in preparing for IR35. They have re-organised their own internal structures, clarified functional responsibilities (for example between HR and Procurement) and re-designed their skills sourcing processes to accelerate how they secure the best external talent as the economy begins to recover from the COVID19 pandemic. This is clearly essential work as in the SAP & Oxford Economics Research 54% of leaders said that the external workforce helped them recover from economic downturns and 62% said external workers were essential to managing fluctuations in demand.
What are leading organisations doing?
Whilst others may be focused on understanding compliance to the legislation leading organisations are focused on ways in which the legislation can enhance their workforce and the experience external workers have when engaged by the business.
“There’s going to be a huge demand for talent, and the questions will be: ‘how do I find it?’ and ‘how do I find it fast?’” says Henrik Smedberg, head of intelligent spend management for UK and Ireland at software group SAP Ariba and SAP Fieldglass.
“Some of this legislation heightens the awareness of, and the need to take control of, finding the right talent, retaining the right talent, and making sure that we can manage it.”
With only 35% of organisation having technology in place to manage their external workforce leading organisations, across industry sectors, are those using best in class technologies such as SAP Fieldglass to deal with the complexities of IR35 and differentiate themselves versus their competitors when looking for external talent.
These organisations understand their external workforce in detail, in real time and are able to engage them in a sensitive, sustainable and compliant manner. They understand who the resources are, where they are, the skills they have and are able to quickly on-board and off-board them within their organisations in line with business objectives and customer demand. Crucially they are using their new processes and technologies to retain talent as many external workers do not want to become permanent members of staff. The best external talents want to work for those organisations that can engage them seamlessly, complete due diligence checks efficiently and pay them on time in line with contractual agreements and completed deliverables.
Looking ahead the alignment between organisations requiring highly skilled external talent and individuals preference for freelancing will be ever increasing. It will be those organisations that understand the detail around IR35 and that have the capability to manage it - that will prosper – helping organisations accelerate business success as the economy continues its recovery.
SAP Fieldglass is helping organisations across industries address and manage the impact of IR35 while also ensuring they are able to quickly source the best external talent in a compliant and commercially effective manner.