Liz Truss’s plans for major projects and new exploration in the North Sea is set to create a surge in demand for experienced contractors in the energy sector, yet the industry is already struggling to recruit amidst a national engineering skills shortage.
So how can UK energy businesses compete with international projects in the race for talent? The challenge is to create an attractive offer in a highly competitive job market, while remaining compliant with the latest legislation.
Overcoming regulatory barriers
Until the incendiary mini-budget, one of the most significant barriers to engaging contractors were the recent changes made to IR35, the off-payroll tax legislation, which came into effect in the private sector in April 2021.
The Chancellor has announced that these changes, which made businesses responsible for evaluating the tax status of their contractors and making sure that the correct taxes are paid, will now be repealed. However, it is imperative to note that this will not be until April 2023, so any contracts for projects that out in advance of this date will still need to comply with the rules as they currently stand.
In effect, this puts two hurdles in place when it comes to the contractor recruitment process: attraction and compliance. If managed badly, you can find yourself with either a package that is not financially attractive to highly skilled specialist workers, or with a solution which is not compliant, leading to financial liabilities and reputational damage further down the line.
If managed effectively, however, your approach to IR35 can provide you with a smooth path to talent that places your business out in front of the competition as a hirer of choice.
Cutting corners is a false economy
In the rush to recruit talent for projects, it’s tempting to take shortcuts to get the job done.
Two of the most common mistakes we have seen under the current IR35 rules are companies making blanket inside IR35 tax determinations for contractors, effectively putting them on PAYE to avoid compliance risk, or basing an IR35 status on a similar existing job role to speed up the recruitment process. Both of these routes create significant commercial and compliance risks.
In the current job market, those who apply blanket inside IR35 determinations will find it difficult to generate applications from specialist contractors who can find more attractive, and complaint, offers with their competitors. The idea that this is a fool proof route to compliance is also a fallacy.
Companies who outsource the management of their hiring need to be careful there is no hidden risk buried further down the supply chain, which could resurface at a later point.
Similarly, if basing a status determination on a similar job role, there is a significant risk that the determination could be inaccurate. IR35 is complex legislation, with tax determinations based on working practices and contract specifics, so it is vital to produce IR35 statuses on a case-by-case basis to avoid incurring tax liabilities or even fines in future.
How to attract and retain top contractor talent
The key to attracting highly skilled specialist workers prior to April 2023 is offering outside IR35 roles for those who are engaged on a genuine contractual basis. After April 2023 businesses should give consideration as to how they can adapt their current IR35 process to assist contractors to make their own status determination. This route maximises take-home pay for contractors who are running their own personal service companies — with no requirement to pay employment taxes — while
ensuring that they have the freedom to choose how and when they work.
One tactic to beat the competition is to present the tax status of a new contract role prior to recruitment and include IR35 status on role adverts. This can clearly highlight the company’s compliant and fair approach to IR35 and make clear that it is able to offer outside IR35 roles where possible.
What happens when the rules change again?
When the off-payroll legislation reverts to its original format from April 2023, the need to establish tax status for contract roles will neither disappear, nor become less complex. Responsibility for compliance will simply revert back to contractors.
To make determinations accurately, workers will still require assistance from end-hirers to establish the terms of their contract, so businesses that
can confidently offer and advertise compliant outside IR35 roles will continue to attract the best talent.
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