IR35 – to be or not to be?

In our latest opinion article for Energy Voice, Steve Combe, Regional Manager for AGR Consultancy UK, highlights the importance of offering choice in an increasingly tight UK labour market. At AGR, our mission is to match the best and most relevant experience to the project in hand. We do not advocate IR35 over PAYE or vice-versa, but we know that candidates will choose their next employer or client based on what best meets their expectations in terms of financial package, flexibility and job satisfaction.

Here’s what Steve thinks:

Finding and retaining skills and experience are, once again, among the most pressing challenges facing the energy industry.

The prolonged downturn, caused by the oil price crash back in late 2014, followed by Brexit and then the global pandemic have exacerbated the knowledge drain on the industry and led to acute shortages of skills and, more crucially, experience.

People with the relevant experience are in short supply and the barriers to recruiting them, whether that is as a result of demographics, changes to IR35, Brexit and immigration or competition, have become higher at a time of burgeoning opportunity in the energy industry.

Traditional oil and gas activity has picked up due to the critical need for energy security at the same time as the energy transition is accelerating with major projects on the horizon through the Scotwind and INTOG leasing rounds, not to mention the rise in hydrogen and CCS.

Competition for engineering skills and experience has never been so fierce. The Global Energy Talent Index (GETI), published by Airswift recently, found that almost a third of workers in the oil and gas market had been headhunted over six times in the past year alone. This report also found that 44% of oil and gas workers saw their pay increase last year and two-thirds expect further salary rises next year.

There’s absolutely no doubt that it’s a candidate-driven market and will be for the foreseeable future.

But it must be acknowledged that skilled and experienced people have more choices than ever before. One such choice for candidates has been whether to be a self-employed contractor or a PAYE agency worker.

A major dilemma for both contractors and employers since April 2021 is the question of who is inside or outside of IR35. In other words when is a contractor not a contractor and, instead, a PAYE employee or agency worker?

Much has been reported about the impact of the changes to IR35 on both contractors and employers, but it’s clear that the new regime has left many, on both sides, feeling they no longer have a choice.

Employers, concerned about falling foul of HMRC coupled with the administrative burden and additional costs of policing which people are genuinely entitled to IR35 status, have tended to err on the side of caution and persuaded individual contractors or freelancers, operating as personal service companies, to become staff or PAYE workers.

Large employers, in particular, had to find out if these personal service companies were genuinely contractors. This means being able to demonstrate that they are in business on their own account, with all the risks that involves, have more than one client, can work outwith their clients’ workplace, on their own equipment and systems, and can provide a continuous service in the event of holidays and other absences.

For many contractors or freelancers, the terms and conditions of being on the payroll are perceived to be less attractive than their IR35 status. Most elected to be personal service companies so that they could be self-employed, benefiting from the ability to work independently and flexibly, on their own terms. The financial issues were obviously a factor but, in many cases, the real appeal was being their own boss – in control of their own destiny. It was as much about a flexibility as it was a financial consideration.

But with more choice now available to candidates and experience increasingly scarce, employers must be willing and able to offer both PAYE and IR35 opportunities. Failure to do so will result in an even greater struggle to convince people to join them.

At AGR, our mission is to match the best and most relevant experience to the project in hand. We don’t advocate one over the other, but we know that candidates will choose their next employer or client based on what best meets their expectations in terms of financial package, flexibility and job satisfaction.

Candidates and employers need to be open-minded about both options. We’re nearly two years into the new IR35 regime but many individuals and organisations don’t know or understand all the details in order to make the best and most informed decision.

With salaries and reward packages increasing, PAYE might offer the security and pain free approach many candidates are looking for. Many of our consultants, who were wholly opposed to going on the payroll are now realising that it’s not all bad. Alternatively, if a consultant is legitimately trading as a personal service company and prefers to remain as such, that option should be open to them so that employers can benefit from getting the exact experience and expertise they need as and when it is needed.