Contractors’ Questions: Should agencies be clearer on inside IR35 contract rates?

Contractor’s Question: It was interesting to read what an IR35 professional makes of clients who advertise on the short-term for niche skills on an inside IR35 basis, but what do recruitment professionals make of it?

I believe agencies should be doing much more to stop this underhand practice from happening, but I’ve little faith because some recruiters are also misrepresenting the ‘day rate’ when they advertise inside IR35 contracts, by not mentioning that the day rate is in fact the ‘umbrella rate.’

Such agencies tend to promote the ‘limited company rate’ – the bigger number, and it's only when you dig deeper that you find that they want to make loads of deductions from a rate that was never really available in the first place. Would an agent like to respond?

Expert’s Answer: Although it is a business’s right to advertise for a niche, highly skilled contractor for a short-term period inside of IR35, it’s equally a contractor’s right to turn down such offers!

Silence speaks volumes

It is unlikely that a business advertising in the manner you outline will be able to fill it with someone as highly skilled as they want, and the more contractors that reject such offers, the quicker these clients will need to rethink their approach.

However, at the same time, we must appreciate that every business has to follow the legislation and classify a role as inside IR35 if it truly is. So if an ‘inside’ determination has been made by the client, the agency must always make this clear in their advert as not to waste contractors’ time.

Public sector offender-example

We believe contractors should be able to lean on recruitment agencies for support and expect them to only present contracts to them that are in their best interests. In the past, we had clients come to us with roles at unrealistic rates. When clients have declined our request for on and off-payroll rates, we have had to decline the roles.

In fact, on one occasion we had to walk away from a public sector client altogether and escalate the problem to their CEO because of the unethical practices taking place. The organisation was unwilling to change a contractor’s IR35 status, even after we went through the CEST tool with the client and the contractor was clearly working outside IR35. The client was deliberately entering incorrect responses to contrive the outcome that suited them.

We endeavour to stop situations like this from arising by actively involving ourselves in the IR35 determination process and educating our clients wherever possible.

KID should be dealing with deduction issues

Next, you mention deductions. In April 2020, an amendment to Regulation 13A of The Conduct of Employment Agencies and Employment Businesses Regulations 2003 came into force, putting the onus on recruitment agencies to act with professionalism and transparency in terms of the deductions a contractor should expect, especially when providing service through an umbrella company.

The real-world effect of the amendment? Agencies must now provide a KID (Key Information Document) document to all contractors in order to ensure they fully understand all deductions they may face.

However, we know many contractors who were never given a KID by their previous agency and faced a number of deductions they were not aware of beforehand. This has been the case even though the reform is clear, in terms of the onus sitting with recruitment agencies.

Terrible timing

Yet a number of recruitment leaders we have spoken to admit they shirk this responsibility, instead blaming the time the amendment took effect. Personally, I do agree that the amendment could not have been rolled out at a worse time (during the UK’s first coronavirus lockdown), but there is no excuse for not following the law, and definitely no excuse now for not giving contractors all of the information, they need in order to make an informed decision about a contract opportunity.

Regarding a contract opportunity’s pay, advertising the cost to the agency is the standard within the staffing industry. But for contractors, we advise that when they see a rate advertised, they should keep in mind that this amount only a rough guide. With our placements for example, we advertise a rate yet know that it’s always open to negotiation. And there are two obvious openings. First, If your skills are in-demand enough, the client may pay the agency more to secure you. Second, the agency might reduce their margin in order to get you on board.

Negotiate, evolve, engage

So my recommendation to contractors is negotiate whatever rate you see advertised – ask for more, and ensure you’re provided with a KID. Keep in mind though, if a rate is so low in the first place, why even work with an agency that is willing to work with clients at this sort of rate?

Finally, let us say that we believe that the most successful contractors are those that continue to change their service offering. Many of these contractors are now rejecting the once preferred long-term generalist assignments which may create Mutuality of Obligation, for more short-term, deliverables-based ones. Right now our agency is seeing more and more contractors seek out ‘payment on results’ projects. In addition to being able to maximise their time, completing projects quicker and moving onto new assignments, they tend to experience an increase level of engagement from clients due to the shared risk.

In the future, it is possible that the contractor staffing industry could move to advertise the rate (minus employer deductions), but such a shift would require the whole industry to agree and move to together. Nevertheless it is possible that, like KID, such a change could be made by amending The Conduct of Employment Agencies and Employment Businesses Regulations 2003.

The expert was Matt Collingwood, managing director of IT recruitment company VIQU.