Steve is Head of the Business Transformation & Technology Practice and manages executive level interim appointments. He supports global businesses, FTSE 100s and entrepreneurial SMEs with transformational business change projects.
It’s been branded as the legislative change that could substantially impact the interim market: changes to IR35 which, from April 2020, will force organisations (ie the hirer, rather than the supplier), to determine an interim’s employment status for tax purposes.
The change effectively means it’s employers that will have to decide if their interims are ‘inside’ or ‘outside’ of IR35 (broadly around three rules – the level of control the employer has; an interim and employer’s mutuality of obligation; and whether an interim could supply a substitute). It’s all in the name of HMRC wanting to clamp down on ‘disguised employment’. If they’re inside, employers will be required to pay employers NI (13.8%) and Apprenticeship Levy (0.5%) for their interims which they haven’t previously. A rise in costs which some claim could shrink the interim market, and force employers to transition their recruitment.
Will the interim employment market really be impacted this way? I say not.
There are several reasons why. Firstly, employers need flexibility in their workplace. The rise in cost of an interim will not – for most users – be an issue and they will continue to use interims with a new ‘inside’ determination. I believe that by forcing employers to focus on the three rules, the professionalism of the sector will be raised. Not only does the change determine what an interim does, it also clarifies what they are ‘not’ expected to do (if they want to remain interim). IR35 will bring much needed clarity about expected responsibilities.
I suspect that initially, employers may think twice about using interims if there is someone permanent on their team that could do what they do. However,in the main, interims are hired because specific skills are missing in an organisation, and they are there for a fixed term, to deliver against pre-defined deliverables.
If employers do suddenly release interims, as part of some knee-jerk reaction as we have seen some do, then I predict that these employers will realise the valuable work the interims were doing fairly quickly, and re-hire them further down the line. This was a pattern seen when the legislation was rolled out across the public sector.
There will always be winners and losers with any legislative change. The winners from an employer point of view will be those that don’t take a blanket ‘everyone’s in’ approach, and instead independently assess their interim workforce. Additionally, they will be able to pick up fantastic interim talent who find themselves available due to the ‘lazy’ blanket determinations. Companies should see this as an opportunity to take a systematic look at their interims book, and simply see who their best people are, so they can keep them. And yes, this will involve raising day rates to offset costs.
IR35 isn’t new, it’s been around since 2000. It’s only the responsibility for making the determination that’s changed. For employers, IR35 is just another tax businesses have to pay, because that’s what it is. When viewed like this, the decision about hiring an interim will revert back to what it’s always been about: the utilisation of a highly skilled, flexible workforce.
Eton Bridge Partners is a leading Executive Search and Interim Management firm with specialist practices covering the breadth of corporate leadership