Legal and HR experts have warned that the growing number of businesses using a contractor over a full-time employee to sidestep increased National Insurance bills could be at risk of “costly tribunal claims”.
Last week, jobs data showed an ongoing drop in the number of payrolled staff, and job market experts have said one key driver of this trend is businesses increasingly turning to contractors rather than hiring full-time.
Kate Underwood, Managing Director at Southampton-based Kate Underwood HR and Training, said: “Don’t get me wrong, using a contractor can be a great way to grow your business. But if they look like a duck and quack like a duck, the tax office might say they are a duck.
With IR35 and the new Employment Rights Bill, that could mean holiday pay, sick pay, pensions and a surprise bill from HMRC.”
Employers at risk of tribunal claims
Ian Jones, Director and Principal Solicitor at Birmingham-based Spencer Shaw Solicitors, warned a bill could be accompanied by a costly tribunal claim if businesses get employment status wrong: “It’s really important for business owners to understand employment status and the factors that determine whether a role is employed, self-employed or a worker.
“Several factors affect this status, including bargaining power, how much freedom or control the individual has, and the freedom to work for other people.
“To ensure the contractor role is genuinely self-employed, employers may need to accept some changes to the role. They may also need to accept less control over the individuals doing the work.
“If workers don’t genuinely fit the definition of self-employment, employers could face costly tribunal claims. They could also be ordered to compensate for the rights the individual was denied. This could be far more costly overall.
“Outsourcing could also bring the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) into play. This can be complex and leave employers — and the entities to whom employees are transferred — at risk of litigation.”
HMRC hot on contractor roles since IR35
Samuel Mather-Holgate, Independent Financial Adviser at Swindon-based Mather and Murray Financial, also sounded a note of caution: “If you’re outsourcing a role to a contractor, but HMRC deem the job to be very similar to that of an employee, they could force you to payroll them.
“In that scenario, any benefits of using a contractor would be lost. They are pretty hot on this since IR35 was introduced, so businesses should beware.
“But where you can be flexible with hours and where they work from, using a contractor can be a more agile solution than bringing on a member of staff full time.”
Meanwhile, Underwood said that while contractors can save you money, they can often be less engaged: “Sometimes, contractors can be less engaged and less invested, meaning that “quick fix” can cause more problems than it solves. So yes, use them but use them in the right way.”
