Outcome Based, Services Contracts Provide a Solution to Thousands of UK Businesses in the Lead up to New Off-Payroll Rules in April.

By Richard Tyler, spokesperson for www.bedigitaluk.com

With IR35 due to come into effect in the private sector April 2020, the team at digital solutions provider www.bedigitaluk.comare advising companies operating within the private sector to prepare for the new legislation and the new range of risks that need to be managed to coincide with the changes.

 Companies in regulated industries, such as finance, are predominately taking a risk averse approach and seeking to move all contractors to Statement of Work (SoW), or outcome-based contracts. Whilst SoW based contracts are sensible to manage the risk associated with IR35, they bring new issues for those organisations who utilise contingent labour.

SoW, outcome-based engagements need to specify exactly what kinds of services are being undertaken, the quality metrics expected and timescales for delivery. Understandably, companies want to know what their investment is returning, and will want all outcomes and deliverables specified tightly. This process also transfers risk to the supplier, and gives them the incentive to be more exacting, subsequently reducing flexibility. If something is missing from an initial contract, which will now be compiled based on job-specific targets, companies will be charged more for asking the hired contractor to carry out the additional work.

With the new rules coming into play regarding the aforementioned job-specific targets, IR35 will undoubtedly require companies to reconsider their current process of hiring off-payroll workers. Recruitment processes will need to be scrutinised to align with April’s changes, and take into account the increased overheads that now require managing.

Here are some questions companies need to ask themselves when preparing for the changes presented from IR35.

Do new partners have the skills and experience necessary to specify services contracts?

Engaging with a supplier who has experience working in this manner, and who’ll know how to react to any negative incidents that occur, is one of the quickest ways of mitigating the risks.

Opting for a supplier that knows the market will help, with the types of suppliers seeking to provide relevant services as follows:

1.     Employment agencies who are moving to provide SoW-based contracts to protect their revenue.
2. Established, service-providing consultancies who have been working in this way for many years.

Many contract agencies will still be establishing their service practices and won’t have managed these types of engagements before. These will be the highest risk partners, despite the fact you may be able to contain their margins as they compete for business in the new world.

Established solutions consultancies are likely to be a more costly option, however, their expertise often reducing overall risk and cost in the medium to long term as they are able to work more efficiently.

Will a new partner be able to manage the risks being transferred? 

It’s vital to understand how a partner will manage the risks being transferred, and how this translates into the management of the resources they’ll need in order to deliver required services.

How will they manage the services, who will provide the experience needed within their organisation to understand the bigger picture and have strategic conversations?

Experience will be necessary to find acceptable solutions when issues do arise.

Do new partners have the experience necessary to help staff and develop your capabilities?

Be honest about the capabilities you have to manage the new ways of working regarding the IR35 legislation and find a partner to deliver services who will work in a way that can help you develop your capabilities internally.

Does the supplier know how to do this?  Can the supplier demonstrate how they have helped their clients develop the capabilities required?  Do they have references which provide you with assurance that the relationship will be a growing partnership rather than usury?

There are good suppliers out there who will normally focus on duration of relationship rather than simply revenue per period.  These suppliers want you to develop your capabilities, as it makes you more likely to see the value they bring and will make managing engagements with you easier.