Direct employment in the construction sector

IR35 is due to come into force on 6 April 2021. 

The Joint Industry Board (JIB) has issued a report on direct employment in the construction sector. 

It suggests that contractors should be employed because it believes direct employment will invest in the skills required in the industry. This will result in delivering a more productive and safer working environment.

What is IR35?

The intermediaries legislation, known as IR35, applies where an individual works through an intermediary such as a limited company. These limited companies are also known as a Personal Services Company or PSCs. PSCs are used to provide services to an end-user client, when in reality they would be classed as an employee of that end-user client if the intermediary were not in place.

HMRC has referred to these workers as ‘disguised employees’. These individuals are not really self-employed and seek to avoid paying employee income tax and national insurance contributions.

IR35 was introduced to ensure that those who worked like employees paid broadly the same tax and national insurance contributions. 

Subcontracting and self-employment remain essential features of contracting. However, it has been suggested that the balance has been allowed to tip too far away from direct employment. A more sustainable balance needs to be restored if the industry’s and the Government’s priorities in safety, quality, skills, efficiency and innovation are to be met.  

The report acknowledges that non-direct working offers short-term conveniences such as the freedom to take on and remove workers when necessary and the cost savings by not having to provide benefits such as paid holidays, sick pay, and pensions. While there are also advantages for individuals such as a higher take-home pay, they do not have the benefits, security or protection offered to employees.

It suggests the negative effects of non-direct working threatens the future of apprentice training, career progression and the industry’s capacity to take up new technologies and techniques. There are also negative effects on health, safety and well-being, and the undermining of industry standards and regulations. From a broader societal point of view, non-direct working also reduces the tax receipts which fund public services.

This report concludes that there should be a comprehensive and sustained campaign to reverse this trend, as a key part of current efforts to build a better, more productive, higher skilled and sustainable UK construction industry. 

We assist companies defending Tribunal claims and it is not unusual for a contractor to argue the self-employed arrangement was a sham and that he was in fact an employee or a worker. 

The Supreme Court recently found that Uber drivers were workers and not self-employed drivers. It said that Tribunals must look at the reality of the situation and not be bound by what the documents state. 

If the company loses such an argument it can be costly. Perhaps that is another factor to take into account when deciding whether to directly employ a person or engage them as a self-employed.

Please find previous blogs on this topic here - 

IR35: Government announces review into off-payroll working- Birkett Long Solicitors

Extension of IR35 postponed- Birkett Long Solicitors

IR35 and off-payroll working rules update- Birkett Long Solicitors