IR35 Considerations for workers in ‘Manager’ Roles
An independent contractor’s employment status is ultimately determined by looking at the degree of control being exerted over the independent contractor, whether there is any mutuality of obligations present, and whether the personal service of a specific individual is required, as well as other contributary factors, such as the level of financial risk the independent contractor is taking and whether they are considered to be genuinely in business of their own account.
Whilst these are the pivotal employment status indicators that HMRC would focus on, there are other considerations that you should be mindful of when engaging independent contractors into certain roles.
So does hiring a contractor in a management role mean they will be automatically inside of IR35?
Whilst some of the considerations detailed below will be interchangeable across different role functions, especially those acting as ‘Seniors’ or ‘Leads’, they will be particularly helpful for when seeking to engage an independent contractor in a managerial capacity.
- If you decide to engage an independent contractor into a management function on an assignment, then ideally they would be solely responsible for the management of a project (or part of a project), as opposed to having people management responsibilities.
- This does not mean that an independent contractor who has people management responsibilities will automatically fall foul of IR35. However, if you do decide to engage an independent contractor and expect them to undertake general line management duties, as part of the assignment, you should consider the following:
- Ideally, they should only manage other contractors and not employees;
- They should not have any responsibility for or be involved in any disciplinary or grievance processes, as undertaking such tasks would suggest a high level of integration into your organisation;
- As with disciplinary and grievance processes, an independent contractor should not have any responsibility for recruiting, authorising holidays, managing sick leave or producing rotas/off duty schedules. Such processes are considered a very integral part of a business and therefore should be dealt with by one of your own employees;
- Furthermore, independent contractors should not be involved in interviewing new members of staff;
- You must ensure, as a whole, that an independent contractor performing a management function does not become integrated into your business as the assignment progresses.
- You should always ensure that you view and in turn treat an independent contractor as that and not simply an extension of your employed workforce. This may seem immaterial in isolation but excluding independent contractors from employee activities and/or facilities, such as social events, car parking facilities and corporate benefits, will lend weight to an independent contractor being considered separate and thus not integrated into your business.
- An independent contractor should invest in their company so you should leave the obligation of supplying the necessary tools and equipment for the work down to them as much as possible. They should also undertake and pay for all of their own professional training courses so avoid any temptation to invest in an independent contractor in this way.
- Differences in pay and benefits will not be enough to conclude that an independent contractor is not considered to be a “disguised employee” of a client. You should be able to clearly demonstrate that you are treating independent contractors differently to your employees; both in terms of the services they are providing and how they perform the services. Flexible working, working for other clients, investing in their own business, working on a specific package of work for a fixed fee and/or a fixed period of time, are all ways in which an independent contractor can show that they are truly independent from a client and you should do all you can to accommodate such working arrangements.
If you’re looking for more information, download our guide ‘Will Workers You Hire Be Caught By IR35’ for more information.