For many years, the vast majority of contractors, and on a larger scale, the UK’s self-employed, have had little desire for employment rights.
In 2016, as many as 80% of contractors were satisfied working through their own PSCs, and without holiday or sick pay, pension contribution and maternity or paternity pay. To many freelancers, it contradicted the very definition of what it means to be an independent, free from any of the ties (albeit benefits) that permanent staff often take for granted.
In short, contractors were fine working without any security as such, and were satisfied paying themselves tax efficiently instead, typically through a low salary and high dividends.
But that was then and this is now. Following last year’s IR35 reform, and the high probability of further changes in the private sector before long, a staggering 89% of 1501 contractors surveyed by Qdos Contractor in 2018 would like to be offered employment rights by clients should they be made to work inside IR35.
So what’s changed? Well, reform to IR35 legislation has increased the threat of being caught by the new rules, as public sector engagers – and in time arguably private sector clients too – will be in charge of IR35 determinations.
Currently, those working inside IR35 will be taxed at the same level as an employee, but without any of the rights that permanent staff receive. Contractors working in the private sector are able to claim back the ‘5% expense allowance’, which HMRC allows for the cost of running a company, but this pales in comparison to paying yourself tax efficiently. For public sector contractors, this has been scrapped entirely. But then again none of it seems to stack up.
And so, contractors have understandably called for the offer of employment rights should they be placed inside IR35, whether they work in the private or public sector.
If given the choice of one benefit, exactly half of contractors would like paid holiday, while 23% see pension contribution as a priority. 14% would like the security of sick pay, 12% would like every employment benefit, and just 1% would prefer paid maternity or paternity leave – but this could perhaps be an indicator that the majority of respondents are male, and on average, prioritise paternity leave less.
Clearly uncertainty surrounding this complex tax legislation and the ability of end engagers to make accurate IR35 decisions has shifted contractors’ attitudes to employment rights. And can you blame them? Much has been made about the reliability of CEST (HMRC’s IR35 tool), which ultimately would deter 81% of contractors from working with a particular client or through an agency.
In time, the call for employment rights could well extend far beyond contractors though. Should the Government continue to reduce the financial benefits of working independently in their attempt to stamp out tax avoidance, there’s a possibility that sole traders and the UK’s wider self-employed population could also make their voices heard.