Off-Payroll reform (IR35) – An industry of two halves

With less than 5 weeks to go until the reform of the off-payrolling rules in the private sector come into force on the 6th April 2020, what is the oil and gas sector’s pulse on the imminent reform and how are businesses reacting?

Louise Wood, Managing Director of leading oil and gas recruitment firm Prodrill gives us an overview on how the local landscape is preparing.

It is clear that many businesses across the oil and gas community are still trying to understand and navigate this complexed legislation. This remains a very detailed and granular subject for many businesses, agencies and contractors alike, Louise explains.

From April 2020, the legislation governing IR35 in the private sector for medium to large organisations will change. The IR35 legislation was introduced in the UK in April 2000 to ensure those contracting via a personal service company (PSC) were paying the correct taxes based on their deemed employment status. 

The oil and gas industry has a long history of relying on flexibility across its workforce due to the multi-million-pound investment projects. Staffing up or down to support cyclic project work is essential and contractors are an essential part of the delivery.

In May 2019, a survey published by Brookson Legal found a majority of businesses were confused about the potential implications of changes to off-payroll rules. The poll of 502 UK businesses found 59 per cent were considering a blanket approach to managing the legislation because they did not have time to assess contractors individually. By comparison, just 41 per cent said they would not take this approach as they feared losing contractors if they were wrongly assessed.

Fast forward 9 months and we are seeing mixed decisions across oil and gas clients. Some end users are carrying out ‘fair assessments’ still working through the complexity of the rules, undertaking audits, carrying out individual and role assessments. Whilst others have announced blanket decision to ban the use of PSC contractors altogether. Companies have to consider their organisations strategy and appetite for risk taking ‘reasonable care’ before coming to their final business decision.

Nicole Slowey, Operations Director of leading business advisory firm QDOS comments: ‘‘While the news that certain end user clients will no longer engage contractors due to IR35 reform is concerning, it should be stressed that this is the exception, not the rule. Our work advising oil & gas companies tells us that many businesses will be in a position to compliantly engage contractors outside IR35 after 6th April.

“Oil and gas companies rely on the niche skills, vast experience and unrivalled flexibility that contractors offer. Any firm that forces contractors onto the payroll could lose these workers, who will likely source outside IR35 contracts elsewhere.”

Louise affirms, agreeing to change employment status is not straight forward for a contractor who has been legitimately self-employed for many years, there are lots of key factors to consider. Many contractors have built their reputation in an advisory capacity supporting a variety of different work scopes across a varied client base. Accepting a permanent staff position of a temporary worker PAYE assignment will be a big decision for many. Unless rates are adjusted upwards, individuals need to be given time to consider the financial impact which could result in a net take home reduction by up to 25 per cent.

A candidate will always seek out the best working conditions, a progressive environment and companies which offer benefits that outweigh their competitors. While previously a candidate might have had to consider Client A and Client B and deem them very similar. Now, they will look at which client has changed its terms and conditions and ways of working to ensure contractors can work outside of IR35.

With industry bodies advising we need to hire an additional 25,000 individuals by 2025, against the backdrop of certain skills shortage, it is critical that companies consider the short, medium and long terms impact of the legislation in their work force planning.

I suspect from what decisions we have seen so far; we may enter into a local employment landscape of two halves. It’s important for any company to have a ‘back up plan’ that will ensure they have talent at their disposal to complete projects on time, to budget and with an outstanding reputation intact.