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Will contractors ask for higher pay rates to offset the Employer’s NI?


Will contractors ask for higher pay rates to offset the Employer’s NI?

Some UK Government departments are apparently advising their IT contractors to raise their fees by 20%.  Other public sector bodies are taking various approaches to the problem: some are refusing to let the workers function as PCSs, while others are ensuring compliance with IR35 by employing only those workers that function within IR35. Most companies in the education sector also refuse to hire contractors that fall outside of IR35 and are looking to umbrellas and deemed employment PSCs.

The public sector contractors will ultimately end up taking home less than they were when they ran their own PSCs; even the 5% allowance for expenses has been withdrawn.  Not only will they be taxed as an employee, the added insult is they will not receive any of the benefits of an employee.  Whether they work through an umbrella where they will also need to pay some fee for the service or whether they go through the agency payroll, they will be worse off and therefore may look to balance their accounts by requesting a higher rate.  For sectors where there are frameworks in operation or rate caps, then the agencies will be stuck between a rock and a hard place!

The increased costs for agencies not only potentially include the Apprenticeship Levy but also Employers NI will have to be costed in too.  Any contractors’ rate hike will cause more headaches around the boardroom table.

What sectors does your recruitment agency cater to? Are the end employers willing or able to hike the fees for the workers? Are the workers willing to take a pay cut? Or will your margins take a hit?

Act now – have those discussions with the public sector clients or framework suppliers to get the lay of the land.

Need assistance?

Our IR35 experts would be happy to talk to you on a call or visit your office for a chat over a cup of coffee. For any queries regarding IR35, please feel free to contact:

Pom Chakravarti: Call 07870 678 557 or email pom.chakravarti@qxltd.com

Kunal Shah: Call 0758 4651087 or email kunal.shah@qxltd.com.  

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