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Contractor survival and the role of recruiters

27th August, 2020

Contractor survival and the role of recruiters

Covid-19, IR35 and the latest IPSE figures

Earlier this month, IPSE, the Association of Independent Professionals and the Self-Employed, revealed that in the second quarter of 2020 freelancers’ incomes dropped by a staggering 25%. The fall was contributed to the plight of many contractors working through PSCs not being eligible for the government’s Self-Employment Income Support Scheme.

Not surprising then, that the most recent ONS figures show a record 238,000 fewer people registered as self-employed than the previous quarter as many seek to leave self-employment for more permanent roles in order to maintain a reliable source of income.

Contractors holding out

Though this may at first glance imply a growing trend, our recent poll indicates a steady resolve amongst contractors, in which the majority of respondents – 52%, maintain that if a client were to assess them as inside IR35 they would terminate the role immediately. Of the remainder, 28% would not renew on conclusion of the contract and only 20% would accept the assessment as inside.

This resolve may also be contributing to the plight of recruitment agencies which are struggling. It is difficult to place contractors with clients who are now far more reticent to take them on especially on as ‘inside IR35’, when their permanent staff are furloughed or worse still, let go due to economic pressures. Side-stepping the possible attentions of HMRC would seem like a sensible course to take. After all, why add another layer of anxiety to an already stressful situation?

Recruitment sector woes and IR35

However, the detrimental knock on effect of not tackling these issues face on is illustrated by HSBC’s Professional Services survey of the recruitment sector. Primarily focussing on the impact of Covid-19, the survey also found that over 80% of firms expect a drop in income for full year 20/21. This is a remarkable figure, but not one that can be attributed to the pandemic alone. One CFO stated that they were already suffering an erosion of revenues due to IR35. One suspects many others would concur that Covid-19 just compounded the decline the off-payroll rules had begun.

For a sector that has for the past few years consistently focussed 86% on temporary and contract staffing as opposed to permanent placements, this is significant. To underline the importance of this, ONS data shows that the UK has led the world in placing temporary workers – 5.3% – as opposed to Australia at 2.7% and the US at 2%. The HSBC survey predicts that this leading percentage will diminish in the years to come because of the impact of IR35.

Earmarked for growth

On a more positive note, the HSBC survey points to the recruitment sector’s resilience, stating that recruiters with exposure to tech, healthcare, bio-tech, education and IT are likely to ‘benefit’ from the Covid-19 pandemic. These are sectors which rely heavily on a contingent workforce. How much more resilient would recruiters and their clients be if they could also see that correctly managing IR35 could bring its own opportunities to consolidate and grow their presence in a re-emerging market?

If you are a contractor and have any questions relating to the status of your current contract or future working practises please contact our legal team at info@wttlegal.co.uk for a free initial consultation.

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