How many of the contractors you’ve just interviewed for your latest assignment were wearing wedding rings? If you choose the more mature married contractor, you might just be onto a good thing – massive payroll savings.
Contractor clients and employers could be missing a trick if they fail to dig a little deeper into how their workers get paid. By discriminating against single limited company contractors, umbrella contractors and employees, and only hiring married limited company contractors, client and employer organisations can slash their employment costs.
That’s the logical conclusion of ContractorCalculator’s analysis of the cost of contractors and employees to end-user clients and employers. When you do the sums, it can cost a client or employer as much as £60,000 extra to employ someone who gets the same take-home pay as a married contractor.
Married limited company contractors can of course legitimately split their income with a spouse and remain unaffected by the settlements legislation. This has a huge impact on take-home pay once a contractor starts earning £5,000 or more per month.
At net incomes of £3,000 per month limited company contractors outside IR35 – whether or not they are married – are cheaper by between £13,000 and £15,000 per year than contractors inside IR35, umbrella contractors or those on fixed-term employment contracts. That’s quite a saving by itself.
When you look at contractors who require earnings after tax of £5,000 per month, choosing a married limited company contractor to fill a role becomes a no-brainer. They are about £7,000 per year cheaper to hire than single contractors, and nearly £30,000 pa cheaper than a contractor hired on a fixed-term employment contract.
But it’s when you start to look at high level and senior contractors, such as programme and change IT contractors and senior interims, that the real savings can be made. Married limited company contractors requiring net pay of £7,000 per month only cost the client £106,664 for a one-year contract.
To hire the same contractor and pay them £7,000 net each month costs £165,787 if they’re inside IR35; £158,937 if they’re using an umbrella; and £157,497 if they’re employed on a fixed-term contract. That costs the client between £50,000 and £60,000 more each year than using a married, limited company contractor outside IR35. Even a single limited company contractor costs £126,408, roughly 25% more.
As an aside, these figures show that the Exchequer Secretary to the Treasury Danny Alexander’s off-payroll rules, designed to ensure government workers pay employment taxes, are likely to backfire. Forcing a senior interim onto a government department’s payroll will end up costing the taxpayer far more than the Exchequer can hope to gain from additional taxes.
So, the next time you are hiring, take a discreet look at your interviewee’s left hand. The glint of a wedding band might just mean you can try it on: try negotiating a better deal, that is.