The energy industry has traditionally relied on skilled contractors for project delivery, offering an attractive route for flexible work long before many other sectors realised its benefits. But it now risks being left behind in the post-pandemic competition for talent.
This predicament is the result of a perfect storm between changing expectations of workers, the industry’s transition towards cleaner, greener energy sources, the current UK national skills shortage and the new off-payroll working rules implemented by the government this April.
With lucrative contract rates for specialist expertise, the oil and gas industry was traditionally insulated from disruption in the wider jobs market. However, even prior to the pandemic a number of data points warned that a skills crisis was looming.
A Global Energy Talent Index (GETI) report in January 2019 blamed cuts to graduate recruitment and apprenticeships during the last oil downturn for a lack of investment in the sector. But it also found that young people were less attracted to big salaries than in the past and that many engineering graduates were instead turning to tech firms or renewables. In other words, the industry is fighting for resource with sectors who are also now offering flexible, exciting opportunities for technically skilled workers.
This trend has been exacerbated by the shock of the pandemic fossil fuel crash, with many oil and gas workers questioning the security of their jobs or considering a more sustainable career path. A survey by OilandGasjobsearch.com during the first lockdown in 2020 revealed that 36% of respondents were looking to change careers after Covid-19.
With the UK hitting one million job vacancies for the first time in September 2021, the economic bounce back from furlough is very much a workers’ market. Which brings us to the changes to the off payroll working rules, or IR35, as they are more commonly known.
The changes introduced to the private sector in April were first introduced into the public sector in 2017. In effect, they make the end-hirer responsible for assessing the tax status of all contractors. In the event that workers are deemed ‘inside IR35’, treated as employees for tax purposes rather than genuinely independent contractors, they must also ensure that the correct employment taxes are paid.
Fear of HMRC tax liabilities and fines has driven many companies to play it safe or implement quick fix compliance with the rule changes. This is understandable, given that operational and financial survival has been the primary focus for the last 18 months. However, as projects get off the ground again and demand for contractors rises, many are now realising that the IR35 solution they have in place is hampering their efforts to recruit the talent they need in a competitive market.
We have heard many of the oil and gas or engineering contractors that we work with complain that they are increasingly being asked to work under payroll or consider permanent roles. If you are a genuine skilled contractor who can find project work outside of IR35, then you are unlikely to want to lose up to 20% of your take home pay in employment taxes working under PAYE. Especially when you consider yourself a genuinely independent contractor and are already responsible for your own holiday pay, sick pay and overheads across the year. Many feel like they are being hoodwinked into lower pay.
In the public sector in 2017, this led to a talent drain towards the private sector, leading to major project delays and missed contract deadlines.
The problem is that far too many energy companies are classifying outside IR35 roles as inside IR35; it doesn’t have to be like this. According to the government’s data, and our own extensive portfolio of IR35 reviews, only around 30% of contractor roles should fall inside IR35.
This isn’t about avoiding tax, it’s about taking the reasonable care required by the new legislation to correctly determine the status of your contractor population. As we have seen, it’s not just about the money, it’s about making contractors feel more valued.
By engaging specialist support to review the IR35 status of a contractor population, energy businesses can ensure that they have a competitive advantage in the competition for flexible talent, while also having greater confidence in HMRC compliance. Getting this right is the first step on the road towards post-pandemic growth.
Recommended for you
