The Impact of IR35 on Recruitment: A Recruiter's Perspective

IR35 is tax legislation, aimed at preventing reduced tax bill for workers who operate as the director of their own Limited Company. It has become a major concern for companies hiring contractors as the onus is now on the hiring company to ensure the correct status is achieved and appropriate taxes are applied. Many organisations want to protect themselves from such tax liabilities. In doing so they have adopted a blanket approach of placing all contractors inside IR35 and choosing not to engage with limited company contractors. This may seem safe. But, it has severe consequences for talent acquisition.

The Impact on Talent Acquisition.

The choice to only engage contractors inside IR35 can make hiring talent almost impossible. This is especially true for roles requiring specialised skills. Here's why:

1. Money isn't the only factor contractors consider when evaluating a role. But, it is undeniably important. Contractors placed inside IR35 will be subject to a reduction in  take-home pay. This is due to the taxes applied.

2. Skilled contractors are unlikely to accept a role that pays much less. They could earn more elsewhere. This puts companies with blanket inside IR35 policies at a large competitive disadvantage. 

3. Top talents are more likely to go to companies offering outside IR35 positions. This leaves those with inside IR35 policies struggling to fill critical roles and also overpaying, as additional resource and time may be needed to complete the work

The Solution: A Proper IR35 Process

To beat these challenges and attract top talent, companies need a robust IR35 assessment process. This involves:

1. Assessing each contractor individually. Don't adopt a blanket policy. 

2. Keep detailed records of IR35 status determinations to show due diligence. Document the process clearly to demonstrate compliance with regulations.

3. You should ensure that contracts and working practices are aligned to avoid ambiguity over the status.

4. Education and communication are key. Make sure all personnel involved in contractor engagements understand IR35 and the requirements. This includes hiring managers and contractors.

By using these measures, companies can ensure that they are not cutting themselves off from the most specialist parts of the market. . This approach reduces legal risks and helps attract and retain top talent.

In the recruitment market, offering outside IR35 positions can be a game-changer. Companies that invest in enhancing internal IR35 maturity and processes will be in a greater position.
While the IR35 rules are complex, it is completely achievable to embed IR35 assessment processes that reduces risk and ensure contractor talent is engaged correctly and compliantly. These processes can help organisations navigate the complexities of IR35 legislation, minimise the risk of non-compliance, and maintain a flexible workforce without incurring hefty penalties. 

Contact CoComply today for more information on how to establish effective IR35 compliance strategies tailored to your organisation's needs.