Increase in pay costs when freelancers and contractors become employees

Half of freelance and contract workers would seek a pay increase and other benefits if their hirer categorised them as falling inside IR35 legislation, a poll has shown.

A survey of contractors found 50% of those polled would ask for more money if re-categorised as falling under IR35 when the changes to off-payroll rules are rolled out to the private sector this April.
Employers cannot expect to continue business as usual without offering contractors caught within IR35 some form of compensation. Where firms find the relationship between contractors and organisations resembles employment, they should consider hiring them as employees.

Under IR35, if a contractor is deemed to carry out similar or the same work as a permanent staff member their employer is required to deduct income tax and national insurance contributions as if they were an employee. The legislation was introduced to ensure workers undertaking similar roles paid similar tax regardless of whether they are an employee or contractor.

Changes coming into force in the private sector in April shift the responsibility of assessing which contractors fall into this category on to employers. The changes have applied to public sector employers since 2017.

But a lack of Government guidance and uncertainty over the changes to the rules has made it difficult for recruiters to provide the right advice and also placed the onus on them to do so. With such a short timeframe left to address IR35, recruiters will play a pivotal role in ensuring the changes are properly enforced and will also be answerable to HMRC when the time comes.

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