Contractor to Agency Worker

With the proposed Off-Payroll Worker April 2020 legislation still on the cards, one of the consequences that many project management practitioners will face is the prospect of losing their status as a Contractor and becoming an Agency Worker!

This change in status will be part of a package of blows that project management practitioners who currently work through a PSC (Personal Services Company) will face if they are deemed to be IN-Scope of the legislation come April 2020. Their PSC (Limited Company) will become redundant if the pattern seen when the legislation was implemented in the Public Sector is replicated across the Private Sector.

In the Public Sector implementation, we saw many Government departments taking the zero-risk position and deeming all roles to be IN-Scope regardless of the circumstances around any particular assignment. This “blanketing” as it came to be called was issued with a “take it or leave it ultimatum”, which left many contractors with no room for maneuver as circumstance or skillset meant that they had little choice other than to accept the decision.

The decision to classify as IN-Scope was then compounded by the decision to force workers to provide their services through an Umbrella company who would take on the responsibility of the “Fee Payer”. This arrangement was a real boost for the Umbrella companies, who suddenly had a massive influx of workers to sign-up and offered some level of protection to the agencies and hiring bodies in the supply chain.

Once in this supply chain, workers began to have money deducted at source at a level that for some created serious cashflow issues after years of dealing with “gross fee income” rather than a “net salary”.

On the upside, as you are employed by the Umbrella company; you have some employment rights such as the right to be paid the minimum wage, holiday pay, the right to be auto-enrolled in a pension scheme and possibly some statutory benefits if you meet the relevant criteria. You are also covered by the Agency Worker Legislation as that will be your new status.

On the downside, for may practitioners we saw the following:

  • No change in day rate offered
  • Self-funded deduction of Employers National Insurance at 13.8% from day rate so this can be transacted by the Umbrella company.
  • Deduction for Apprenticeship Levy
  • Charges levied by the Umbrella company based upon the scheme chosen.
  • No deductions / allowance for travel or accommodation as you are working under supervision and control
  • Rolled up, self-funded holiday pay
  • PAYE and National Insurance deducted at appropriate rates from Gross Pay

Overall the impact could be very dramatic with substantial deductions depending upon the day rates that the workers were being paid.

When factored over the full financial year the impact may not be as serious as it first appears, as PSC’s were still paying Corporation Tax on profits and the individuals were still subject to taxation on the personal incomes and dividends. However, those taxes would generally have been settled up sometime after the revenue was generated and paid into the business/private bank accounts. The key difference will be timing as the deductions made by the Umbrella company will either be weekly or monthly.

So if you are currently running a PSC it is important to understand the implications of a change from Contractor to Agency Worker so that you can plan for not only the loss of status, the changes to your cashflow and also the potential loss of income if you cannot increase your day rate by an appropriate amount. In or Out it is a great idea to have done some research on how this new legislation may impact the money in your pocket.

Find out more about how IR35 Off-Payroll Working might effect you.

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