Wage Inflation & Contractor Shortages Predicted

Research has revealed that HR Directors echo contractor’s concerns on rumoured reform to private sector IR35.

Since IR35 legislation was enforced 17 years ago, UK contractors have been left confused by it. Still to this day, questions such as ‘What is IR35?’, ‘Do I need IR35 insurance?’ and, ‘What is the IR35 investigation process?’ have never been so prevalent.

Now, given that public sector employers and agencies find themselves responsible – and indeed liable – when it comes to public sector IR35 and setting the employment status of the contractors they engage, UK businesses have echoed similar concern.

Recently published research has revealed that HR Directors are particularly concerned the effect that rumoured changes to IR35 in the public sector might have on the companies they work for. This reflects that IR35 is no longer simply an inconvenience which contractors must deal with alone. It is an issue with the potential to affect UK business in its entirety – assuming that it isn’t already.

71% of the HR Directors surveyed by Green Park fear that private sector IR35 reform would lead to wage inflation, as contractors raise their day-rates to cope with the possibility of working inside IR35. This is followed closely by 67% who are confident that any move to roll out similar IR35 reform to the private sector would result in a growing difficulty to recruit contractors.

Research of our own nodded to something similar. While the largest proportion (36%) of contractors surveyed would continue contracting regardless of private sector IR35 reform, 33% revealed that they would consider employment should private sector changes be given the go-ahead.

While independent working is very much considered the new way of working, there is a chance that the Government could jeopardise it – a concern emphasised by the majority of HR Director’s fears over contractor shortages.

Contractors enable businesses to be agile, hire as and when they need, respond quickly to peaks and troughs in their own demand and enable growth. 52% of HR Directors believe any move to reform private sector IR35 would affect this.

Just under half (46%) of HR Directors expect that they would need to redraft existing contracts for the freelancers, contractors and interims their engage – which in many cases would include the need for IR35 contract reviews. Another 46% believe their business would look to reduce their contractor headcount, without being able to fill newly vacant positions with permanent employees. This just goes to show the truly unique offering which flexible, contract workers bring to businesses.

Qdos Contractor research highlighted that 62% of contractors surveyed earn a day-rate of £400 and over, with 39% of those charging £500 or more for their services. If day-rate is anything to go by, this suggests that in many cases contractors are placed in roles core to the businesses which engage them.

That Green Park’s survey revealed 42% of HR Directors believe private sector IR35 reform would place new limitations on the scope of work contractors are able to perform is obviously a concern.

Businesses often engage contractors for their experience, placing them immediately into mission critical positions to drive growth or manage a crisis for a chosen period of time. Limitations around the type of work contractors can carry out could put the performance of hundreds of thousands of UK businesses at risk.

Just over one in three (35%) of those surveyed believe contractors would look to emigrate overseas to continue contracting in a friendlier business environment. Current and future IT skill shortages are a major issue for many UK businesses, with ICT exams making up less than 2% of all A-level exams sat last year. Any move to push out the UK’s precious IT talent would not be wise for the current and future needs of businesses.

38% worry about the volume of available skills from contractors, no doubt nodding towards the concern that a portion of contractors would consider going employed. Making up the remaining predictions, 31% believe any private sector IR35 reform would reduce their business’s ability to deliver change management and technological developments, while 29% fear that attracting skilled overseas contractors would become difficult.

Just to reiterate, at this stage private sector IR35 reform remains a rumour, albeit one which is widely expected to materialise in due course. And it’s important to stress that the majority of IR35 reviews Qdos Contractor carries out result in the contractor sitting outside of IR35. And while reform has cast an element of confusion and uncertainty on the sector, these changes can in fact be managed on a large scale.

This research does however point towards the impact that rumoured changes could have - not simply on contractors - but the businesses which engage them, value them and perceive them as fundamental components of their organisations.

With more barriers to business, more unnecessary red tape and potentially even a scarcity of contractor talent, UK businesses have now sent a clear message to Government with regards to their concerns over the future of IR35.