What effect will IR35 have on industrial manufacturing?

In the lead up to the extension of IR35 to the private sector in April 2020, a number of questions have been raised in regards to the impact that this will have across different industries. Originally passed in 2000 to tackle “disguised” employment, the changes to IR35 rules in 2017 saw the responsibility for establishing whether a temporary worker is inside IR35 transferred from the individual contractor to the end client.

So, what impact will IR35 have on recruitment in the engineering and manufacturing industry?

Despite early concerns amongst interim professionals who operate via their own limited businesses, the truth is that IR35 hasn’t had much of an impact in regards to hiring.

The effects IR35 might have on recruitment 

Due to the fact that the engineering and manufacturing market is more focused on permanent employment contracts, the sector will likely experience minimal effects as a result of the private sector extension of IR35.  

However, areas such as short-term cover contracts whereby an individual is engaged on a self-employed basis through their own Private Services Company (PSC) may be affected. Following the rollout, these professionals would need to be moved to an on payroll engagement model, where the individual will be engaged either through an umbrella organisation, direct on the hiring organisation’s payroll, or supplied as a PAYE employee by a recruitment agency. 

In industrial manufacturing specifically, it is likely this will simply mean a reduced level of flexibility when taking on contractors through their own PSC/LTD companies. However, this will only be limited in cases where the position is deemed by the HMRC assessment tool to fall within IR35. 

Managing IR35 changes successfully

Businesses that rely heavily on interim labour should ensure that projects for which contractors are required are defined on a specific project basis. This will require employers to prove that the existing workforce is unable to complete the tasks required for delivery and that any contractor engaged to deliver will not exist within the structure of the organisation once the project has been completed. Contractors engaged should be done so in line with specific tasks and project-related delivery milestones. They must also be able to operate to a brief, rather than under direct line management. 

As long as the resourcing meets these criteria, it is more likely that the HMRC will correctly deem the contractors as off payroll, and hence outside of IR35. It is also important to make sure that existing teams are fully equipped to tackle any challenges of IR35 head on. Robust HR functions and recruitment partnerships with agencies that have been trained on resourcing contractors in line with IR35 guidelines will be key. 

How to recruit following the IR35 changes 

As with any legislation change, a comprehensive understanding of the criteria and impact of IR35 on hiring resources will be important. This will mean having a robust recruitment process in place to ensure that any interim labour or contractors engaged have been assessed by the HMRC online assessment tool. Any individuals who do not fall outside IR35 or meet off payroll conditions must be declared as on payroll, whether that by through umbrella, agency, or direct recruitment. 

The recruitment market within engineering and manufacturing has seen regular shifts over the years. As with previous changes in the market, IR35 will require careful consideration from hiring managers to ensure that they are hiring in line with the legislation. 

If you are interested in speaking with one of our specialist recruitment consultants to discuss hiring for your engineering and manufacturing business, get in touch today. Alternatively, read more about our IR35.

Louise McReynolds
Associate Director, Michael Page