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Statement of work - do you know your risks?

The number of solo self-employed in the UK (excluding those who have others working for them) was 4.4 million in 20201. This is a slight drop on the previous year, but the freelance community now represents 36% of the global workforce2 as more people seek more autonomy and flexibility in their work. 75% of freelancers3 say they wouldn’t trade their jobs for other kinds of work.

The demand for those self-employed contract workers is undoubtedly there as more people work from home post-COVID. 67% of business managers4 say they use freelancers to bring in new skills, and 42%5 admit that bringing in temporary staff gets the work done quicker.

As a result, the relationship between the worker, the hirer and the recruiter has changed. The UK’s IR356 tax avoidance legislation has recently been expanded to include limited companies in the private sector. As limited companies are often the business structure choice of the self-employed or freelance professional, hirers now risk paying more tax or National Insurance for using contractors off-payroll. This means recruiters are becoming conduits between these self-employed freelancers and the client. It changes the dynamic and has led to the rise in popularity of the Statement of Work.

How does a Statement of Work impact the recruiter?

A Statement of Work outlines all the detail of a temporary contract or project - the brief, the timings, the budget, the payment terms and the personnel involved.

In signing one to secure a client, recruiters may be opening themselves up to new risks, so it’s essential to be aware of what’s involved:

  • The recruiter needs to carry out the tax determination status7 of any worker being hired, which saves hirers money and reduces their risk of investigation by HMRC.
  • The recruiter has to draw up an effective, legally binding Terms and Conditions document to avoid this becoming a disguised employment provision.8
  • The recruiter needs to demonstrate reasonable care in determining the IR35 status of workers.9
  • They must also provide the necessary insurances to cover the enhanced risk assumed under these contracts, including breach of contracts (which could incur penalties from the hirers if the work is not done on time or to the satisfaction of the hirers). This will create a primary risk, where previously, the risk was more contingent.
  • It’s important to record and provide some evidence regarding their involvement in supervision, direction, tracking etc.
  • There may be the need to pay the workers until the desired work is completed. The hirers ultimately pay for the service when their outcome is achieved. At the very least, this can impact the cash flow of a recruiter. Still, it also leaves the recruiter vulnerable - if the hirer goes bust, then the recruiter is left out of pocket.

This all requires more time, creates more work, more risk, and more insurance and administration costs.

Recruiters should not see a Statement of Work as a quick-win that gains them a client for little extra effort. It’s potentially a completely different way of working. Therefore, it’s vital to thoroughly review all details and responsibilities, ensuring you are compensated for your additional time and protected against any new risks.

Sources: 

1. https://www.ipse.co.uk/policy/research/the-self-employed-landscape/the-self-employed-landscape-report-2020.html
2. https://www.thimble.com/blog/freelance-statistics-2021
3. https://www.forbes.com/sites/davidhowell1/2020/10/30/a-bright-future-for-small-business-freelancers/?sh=7ae64e154565
4. https://www.hrmagazine.co.uk/content/news/freelance-workers-could-answer-flexible-workforce-demand
5. https://www.hrmagazine.co.uk/content/news/freelance-workers-could-answer-flexible-workforce-demand
6. https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
7. https://www.gov.uk/guidance/check-employment-status-for-tax
8. https://www.gov.uk/government/publications/independent-loan-charge-review-summary-of-evidence/section-3-off-payroll-and-disguised-remunerationhttps://www.gov.uk/guidance/understanding-off-payroll-working-ir35

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Peter Stoll
A director of the Marsh Commercial Manchester branch, Peter Stoll ACII, also heads up the recruitment division. With 35 years’ experience of delivering bespoke insurance solutions for recruiters, Peter has developed a wealth of knowledge of the sectors’ insurance demands and needs.

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