How management roles and being managed can impact IR35 status
Managers provide an integral function to any organisation, and it is a core characteristic of a management role to have the right of control over subordinate colleagues. With such integration and control being evident, it can sometimes be difficult for an independent contractor to operate on a truly self-employed basis for the purposes of the IR35 legislation where they are acting in the capacity of a manager, or alternatively fall under the end-hirer’s management structure.
Although seeking professional advice regarding a worker’s IR35 status is highly recommended, there are several considerations which can be made to assist individual contractors, recruitment businesses and end-hirers in determining whether the presence of management may cause problems from on IR35 perspective. For ease of reference these are split into ‘Managers’ and ‘Those who are managed’.
Managers (including supervisory roles)
Independent Contractors acting in the capacity of a manager or supervisor are often considered high-risk from an IR35 perspective because of the way in which their tasks are performed day to day. Ultimately, it may be difficult to establish the independence of a contractor operating in a management role.
The following sets out some straightforward steps to ensure that the line between being independent and disguised employment are not crossed:
- Avoid traditional managerial duties – performing tasks such as authorising holidays, appraisals, dealing with disciplinary/grievance issues, recruitment etc. suggests that a contractor is actually ‘part and parcel’ of the end hirer’s workforce as decisions are being made on behalf of the end-hirer. These are functions typically expected of an internal manager and as such should be avoided.
- Instead, a contractor should ensure that they are only responsible for managing a project (or an aspect of a project). Allocating tasks in order to facilitate the management of the logistics and scheduling of a project can be fine from an IR35 perspective as is the management and sourcing of suppliers as long as it is all in relation to a specific project which will come to an end at some stage and this element of the work is detailed as being within the desired deliverables of the project.
- Define the scope of the services – it is essential that the services to be provided and deliverables of an engagement are clearly identified at the outset. These should be defined within the contract for services to set out that the end-hirer understands the circumstances. Where tasks are performed that fall outside the ambit of those defined at the outset, these should also be clearly documented to demonstrate the agreeance between the parties for such services to be provided.
- A previous employment relationship is particularly risky as existing members of the end-hirer’s staff may not fully understand the nature of the contractor’s new relationship and the boundaries that this brings with it. Additionally, if delivering the agreed scope of works is reliant upon knowledge gained during a contractor’s employment with an end-hirer, it could be seen that the contractor remains integrated into the end-hirer workforce rendering the engagement to be one of disguised employment.
- Consider the remainder of IR35 best practices to ensure that the entire assignment is compliant with IR35.
Line management and project management are not the same thing, and this understanding is reflected in employment status. Line managers will most likely be caught by IR35 whereas project managers, having adopted best practice in relation to their employment status, should be seen to be truly independent from their end-hirer.
Those who are managed
Independent contractors should be engaged to provide specialist services to an end hirer due to them being an expert in their field. It therefore follows that the contractor should be free to arrange their own activities, rather than being subject to the supervision, direction and/or control of their end-hirer.
Where an engagement involves the presence of a manager, the following should be considered in relation to the IR35 implications:
- Ensure that you remain free to arrange your own activities instead of the ‘manager’ dictating when to perform your tasks, where to carry them out and how to do them (subject to any reasonable deadlines or specifications, or legal requirements).
- If a contractor is subject to the supervision of a manager/team leader, their involvement with the contractor should be no more than ‘overseeing’ the work to make sure that tasks are being completed in accordance with the agreed deliverables and deadlines.
- Allocation of work – ideally, a contractor should be allocated a project or set tasks/deliverables and then be allowed to use their own skills and initiative to complete it. Where individual tasks are allocated with an instruction on how to complete them and a detailed timeframe, this is reflective of the level of control exerted over an employee and may render a contractor inside of IR35.
- Checking work is highly employment-like and ideally should be avoided. It is however reasonable for the end-hirer to ensure that the end products meet the required standards and criteria.
- It can suggest that there is an employment-like structure in place where a contractor is required to report to someone within the end-hirer’s company. This brings with it a suggestion that the contractor may fall under the supervision or direction of that person. Any reporting should be limited to progress reports as may reasonably be requested by the end-hirer from time-to-time.
- Consider the remainder of IR35 best practices to ensure that the entire assignment is compliant with IR35.
Compliance with IR35 is not out of reach for contractors who are operating in a project management capacity, provided that the necessary considerations are made. It may also be possible to operate in a manner truly independent from an end-hirer where there is a manager or supervisor present, if the level of control that they have the right to exercise is not to the same degree as would be expected within an employment relationship.
Find out more about the IR35 considerations for workers in ‘manager’ roles.