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IR35 off-payroll working legislation: what are the primary factors?

on Tue, 17/11/2020 – 06:22
primary factors of IR35

what are the primary IR35 factors?

Almost 15% of companies claim to have no idea about the new legislation and its rules. Consequently, the right knowledge and information about off payroll working is required for businesses to remain compliant and efficient. To support you, at giant we have a team of experts to fully guide you and take you ahead step by step.

Firstly, let’s talk about which parties are in the scope of this legislation. Off-payroll working has been introduced for contractors who engage via their own limited companies typically known as Personal Service Companies (PSCs). Currently it is the responsibility of the worker to determine their own employment status by assessing their contract and working practices against what is known as the IR35 intermediaries legislation. An ‘outside IR35’ decision means the contractor pays significantly less tax. HMRC believe the workers often do not do the assessments correctly. HMRC think that nine out of ten times, the ‘outside IR35’ decisions are incorrect.

You as hirers will be responsible for determining that employment status and making sure that the decisions are 100% accurate under the impact of working conditions and reasonable care.

Having an expert as giant to assess the assignments individually for your contractors is an option for you as hirers to secure your company from any financial and reputational risk.

Almost 73% of the employers believed that the new legislation would impact their hiring decisions to a larger extent. This dilemma will be affecting the recruitment industry to a much greater extent. Let’s now talk about the working practices that inevitably cause this dilemma and their impact.

supervision, direction, or control

Assessing working practices of a contractor is a great way to determine whether they are an independent contractor or an employee of your company.

This factor relates to the scope of worker’s supervision, direction or control over the services being provided to the client. When the client has relatively greater level of control over the services provided by the contractor, it implies that the contractor is most likely to fall inside IR35 and vice versa. In this part, the assessment usually answers the ‘how’ and ‘when’ questions.

For instance, upon being investigated, Mr. Wells (who worked for DPW) was liable to pay the taxes for his eleven months contract. Wells appealed against that decision. It was found that Wells actually was an independent employee as he could decide on his own what was needed for each task, how those needs could be met, and also he could set his own timeline to complete tasks.

mutuality of obligation

Mutuality of obligation refers to the relationship that exists between the worker and the employer. The employer is obligated to deliver continuous work to its workers on a daily basis. An independent worker, however, does not expect any further assignment from the employer after the completion of the assigned work.

Mutuality of obligation looks at the following:
• how the work is offered and accepted
• how often the work has been refused
• whether the work is offered in future
• continuity of work

For example, in Mr. Wells’ case, the court noted that each contract he had with the DWP was always for a very short duration, showing Wells was not an employee.

right of substitution

In case an employer feels obligated to assign the contractor with another assignment right after the completion of one, it is an employer-employee relationship. Such scenario suggests that an employee meets the criteria of being inside IR35. This scenario also includes the condition whether someone else can alternatively replace your worker to get the job done or not. If yes, then your contractor is an independent worker.

Continuing the same example, upon reviewing Mr. Wells’ contract, it was found that his contract included a clause that said that Wells could have sent anyone to work in his place as a substitute.

part and parcel of organization

This part refers to the working practices that are often overlooked while determining the employment status of an employee. These practices include stationery and equipment, work desk, computer, the place where the work is going to take place. An independent worker can choose to perform work from any place he pleases as long as the work gets done. An employee of the company, however, is obliged to show up at his/her designated workplace no matter what. These practices are very crucial to determining the employment status.

The perfect example of part and parcel is the case of John Bassell. He was found to be a disguised employee for Basingstoke-based Automobile Association Limited.

Moreover, in addition to these practices, there are other factors that too have an impact while determining the employment status of your contractors. These factors include holiday pay, working hours, other employee benefits, etc.

The important thing is that you as hirers need to acknowledge the fact that it is extremely essential now more than ever that you assess assignments individually and weigh factors according to the nature of assignment. There’s no hard and fast rule as to the factors that apply on one assignment are fit for another.