Contractors typically have specialist and often hard to source skills that are delivered to clients on a contingent basis. It makes no business sense to engage with experts on a full-time permanent basis.
Although the leaked plan to put contractors on the payroll after only one month failed to materialise in the Autumn Statement 2015 and Finance Bill 2016, policymakers and Government need reminding of why contractors are such an essential component of the economy. Especially as we have yet to hear about next steps for IR35. They also need reminding why attempting to hire them on a permanent basis is just daft.
It’s not just contractors’ skills that are hired on an as needed basis. We don’t all employ a plumber or hairdresser or physio for 52 weeks of the year in case we have a leak, or need a haircut or get a bad back. The gardener cuts the lawn once a week, and not at all during winter, so we’d never employ them.
So why would a bank employ developers for 12 months of the year if the latest project only lasts for six? Why employ a geotechnical engineer for the entire lifespan of construction project, once the foundations have been completed?
The ability to access specific skill sets only when they are needed is not new and has always been a feature of the flexible workforce. But now, with technology as the enabler, the business model underpinning other types of experts and specialists has unleashed a new source of economic activity.
There are many people out there who delight in being geeky and gurus. They might specialise in a legacy language that only a handful of organisations worldwide still use. The internet means that this specialist can be found easily by their customers. They might only work for 12 days a year but get paid £10,000 a day, because that is what these incredibly niche skills are worth to the client organisation.
That’s an awful lot of corporation tax and income tax that would otherwise not be generated. In fact, specialists of this type are often unemployable, so would end up costing the Exchequer money in benefits if they could not be contractors, and not contributing tens of thousands of pounds a year in tax.
Threatening to employ such experts also threatens to de-skill the economy. Only a large consultancy would hire such an individual, which ends up costing the end-client a whole lot more – and that end-client could be a public sector organisation.
Or forcing such individuals onto the payroll doing something else means those valuable skills are completely lost to the UK economy. And many experts would simply up sticks and move to a tax jurisdiction that is more welcoming.
Fortunately, the November leaks came to nothing, and no one-month time limit was imposed. But we have the results of the Intermediaries Legislation (IR35) discussion document to come soon.
Depending on how the Treasury and HMRC decided to go about changing the legislation, that could include measures that include time limits as part of a new eligibility test. The leaks certainly showed that it is the direction of travel for some in Government.
So, policymakers and politicians all need to understand that there are sound business reasons why contractors should not become employees, and that they contribute far more to the economy in that role.
Because the alternative, to force contractors and other highly skilled contingent workers onto the payroll, is just daft, just like employing your plumber or hairdresser.