You’re likely aware that the age of the contractor is coming to a close. The public sector has been required to treat contractors as employees since 2017, except in unusual circumstances. The same is coming to the private sector next year. In our industry, this is big news as tech companies have lived, thrived and sailed away on the back of IT contractors.
At the moment, many contractors have their own limited company and pay themselves a salary and dividend through that vehicle, which is tax efficient for them. HMRC has ruled that this is not a practice to be encouraged and, if in all other respects the contractor is an employee, then they need to be taxed as an employee via PAYE. This is known as ‘being inside IR35’.
Consequently, contractors in IR35 must be on the payroll of an ‘umbrella company’. The umbrella acts as the contractor’s employer and taxes them for PAYE and National Insurance. Most recruitment agencies have an umbrella that they can suggest to the contractor.
Being inside IR35 also means, however, that the contractor is entitled to Hackney’s holiday pay of 27 days plus bank holidays. Contractors will need to request annual leave via their umbrella company but will continue to be paid their daily rate while on leave. Hackney has waived the legal 12 weeks before these entitlements kick in so they are eligible as soon as they start the post. Sick pay is not included unless the contractor and umbrella have agreed that separately. Similarly, contractors’ pension arrangements are agreed between them and the umbrella so that is not within our control.
Recruitment agencies on Matrix are meant to know what being inside IR35 means for a contractor. However, it is worth re-making the point to the recruitment agencies when a request for a contractor is made. This means putting it on the advert, job description, LinkedIn, HackIT, blog… anywhere we advertise the post. It is also imperative that anyone interviewing makes it explicit that the post is inside IR35 and what that means to the candidate.
Please make sure you’re up to speed with this as everyone needs to know what they’ll have in their pay packet and why.at the end of each month.