Contractor Doctor: Can my client change my role mid-contract?

Contractor Insurance

Dear Contractor Doctor

I’m a limited company contractor and for the last three months have been on a contract providing support for a permie project management lead as part of the client’s project management office (PMO). The project manager also has two more permanent PMO support staff reporting to her.

Last week I was informed that the project manager was moving into a new role and the client has asked if I will take on the lead role in the PMO. As this is not what I was hired to do and it would increase my responsibilities significantly, including line management of the two support staff, I have voiced my concerns to the client.

Can my client change my role mid-contract?

Thanks

Richard

Contractor Doctor says:

The short answer is no, a contractor is not obliged to accept a new set of deliverables that are in addition to or replacing those already agreed and contracted.

And by accepting a new set of working conditions without objecting, a contractor may find themselves in the frame for IR35. Being a ‘tail-end Charlie’ and taking any work that the client demands suggests the contractor is controlled by the client, a major IR35 factor.

However, a significant change in deliverables can provide an opportunity for a contractor to up their rate and also include a new skill or capability on their CV. So, any contract negotiations should be handled sensitively, and with the long game in mind.

What is in the contract?

When faced with a change in role, the first step is for a contractor to check what is in the contract. Small changes in a project’s scope could be handled by a simple exchange of emails, or notice of variation, confirming the changed or additional duties.

But when a contractor is suddenly expected to step into a management role with line management responsibility, it is likely to exceed what might be considered to be a reasonable variation in the existing contract.

In this situation, the contractor should speak to the agency first, if there is one, or their client and explain that the role is changing and a new contract is required that accurately represents the change in requirements. The client and contractor need to terminate the existing agreement and create a new one.

This may also be the point when a rate increase negotiation should be started. But a contractor may have to consider remaining in the original role, or even walking away, if the client does not agree to fairly reflect the requirements of the new role in the contract and pay.

‘Tail-end Charlies’: IR35 and control

If a client has the authority to change a contractor’s duties on a whim mid-contract, this strongly suggests that the client believes that it controls the contractor, who by accepting such changes is in reality a ‘tail-end Charlie’, accepting any old work from the client that comes their way.

A significant change in deliverables can provide an opportunity for a contractor to up their rate and also include a new skill or capability on their CV

And by controlling the contractor in this way, the client could be placing the contractor inside IR35. That’s because control, alongside substitution and mutuality of Obligation, is one of the major factors pointing to the disguised employment IR35 is there to tackle.

By refusing to accept the changes without a written variation or a completely new contract, the contractor is asserting their right as an independent business-to-business supplier to change a contract for services because the deliverables are going to change.

Controlling persons legislation

Contractors taking on assignments with a significant element of line management responsibility and control may, from April 2013, be affected by the controlling persons legislation.

The final draft of the legislation has not been published, but based on the consultation conducted by the Treasury, it is likely to require that contractors who are ‘controlling persons’ may have to pay income tax and National Insurance Contributions (NICs) at source under Pay As You Earn (PAYE) via their client’s payroll.

Role changes can be career enhancing

In some cases, a contractor will find that they will benefit from a change in role that is more senior or requires additional skills. That’s because most contractors are hired because of the skills they have, rather than whether they have the potential to grow into a role, as is common in permanent employment.

So, it may pay for a contractor not to push too hard for too great a rate increase because three months in the new role, and the experienced gained in that time, might mean they will be eligible for much higher paid contracts in future.

Accepting a lower than market rate over the short term could end up being a valuable investment, although contractors should be careful not to fall foul of IR35.


Alliance Accountants

Published: Wednesday, November 07, 2012

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