IR35 - Best Practice When Engaging Contractors

Best Practice When Engaging Contractors

In light of recent IR35 tax legislation changes, I thought it prudent to share some insight on the subject, with the aim of helping employers in the public sector to retain and attract specialist contract resource.

The public sector has and always will need specialist and flexible resource to supplement its existing workforce, if they are to continually improve public services. Fully utilising what is often considered an expensive resource is particularly important when dealing with public money.

We often support customers who are responsible for hiring or managing contractors in assignments where the intermediaries’ legislation does not apply (i.e. outside IR35) but, through no fault of their own, are engaging them in ways that may conflict with this employment status, and thus putting themselves at risk. 

It is imperative that each new assignment is correctly assessed, whether inside or outside IR35, to ensure the most appropriate hire. A blanket or inflexible approach will undoubtedly lead to a drain on your available talent pool.

What is IR35?

It seems logical to begin by providing a brief outline of IR35, and why this now affects the public sector.

IR35 (also known as ‘intermediaries’ legislation’) is a UK law affecting the treatment of contractors’ tax payments and National Insurance Contributions (NIC) when they work for an employer through an intermediary – such as a personal services company (PSC). A PSC is usually a limited company of which the contractor is the director and shareholder.

On 6 April 2017, IR35 changed for public sector. Following a government consultation, reforms to existing legislation mean that both public sector organisations (and those responsible for hiring and managing contractors) and recruitment agencies have to decide whether IR35 applies to the contractors they engage, rather than the contractors making this determination themselves.

When hiring a contractor it is the responsibility of the public sector organisation to determine whether the assignment falls inside or outside of IR35 using the HMRC online tool.  We/agencies will then be able to source the most appropriate candidate and ensure the correct tax arrangements are in place.

Temporary Worker v Contractor

Defining the difference between a temporary worker and a contractor is essential when considering what type of resource an employer needs, and how they should be engaged. This will ultimately take care of any IR35-related queries or uncertainties from the outset.  So, here goes:

A  Temporary Worker (or Temp) is brought in to cover a vacancy that is part of the permanent structure of an organisation. Often working to set hours, using equipment provided by the client, and under the direct supervision of the end client.

A  Contractor (or Interim) is brought in to deliver a specific piece of work with an outcome attached to it, and is allowed to deliver this as they see fit.   

A true contractor will most likely be outside of IR35, whereas a temporary worker will usually fall inside IR35.

Key Working Practices

I have outlined some important considerations when engaging a contractor on an ‘Outside IR35’ assignment to ensure their employment status is not conflicted, and that clients gain maximum return on their investment in a specialist resource.

  • Allowing the Right of Substitution

Contractually, most contractors are able to provide a substitute worker; this is nothing new.  Whether you are comfortable with this will depend on the type of work being performed, what outcomes are being worked towards, and other factors – such as security clearance requirements.

  • Moving the contractor to different tasks/ projects

When you engage a contractor it should be to deliver a specific piece of work with a specific outcome. If you wish to move the worker to a different task/project it should be arranged under a completely separate contract agreement (with a specific outcome attached to it).

  • How the contractor undertakes the work

The contractor should be allowed to decide how they deliver the desired outcome, within reason, and not without prior agreement by you/the client. Ultimately, they are the expert and should be treated as such. 

This does also mean that the contractor should not be expected to attend team meetings that make up a regular routine of permanent employees, as they are not doing the same job.  

  • When the work is done

The contractor is not an employee and should not be set specific daily start and finish times.  That said, a contractor is expected to operate in a way that is acceptable for the client, so a work schedule should be agreed.

  • Where the work is done 

This depends on the nature of the work or security parameters, but most contractors will deliver their service across both client site(s) and from their own premises, if they have this option.  Again, as long as the desired outcomes are being met the contractor should not be given set supervision and control parameters – including a specific work location.

  • Allowing the contractor to provide own equipment and/or own premises

A contractor often works from their own laptop and performs part or all of the assignment from their own premises.  Any associated costs should normally be factored in to the contractors’ daily rate, so you should not be paying for any expenses unless for significant travel away from any agreed work locations. Again, this is something that needs to be agreed upon from the outset so that all parties know what is acceptable in order to deliver the desired outcome.

  • How to pay the contractor

Most will operate under an hourly or daily rate. However, some contractors may prefer to work for a fixed price for a specific piece of work, which can be attractive to clients.

It is also worth noting that there is an alternative way to engage specialist resource, on a ‘Statement of Work’ or ‘Service Contract’ basis, where the contractor is only paid once a specific outcome (or deliverable) has been completed.  As such, the risk and liability is shared with the supplier – and IR35 does not apply to this type of contractual engagement – so is well worth considering.

  • What the contractor should be held accountable for

It is crucial to understand that a contractor should always be held liable to perform to an acceptable standard, and where necessary, correct any of their work at no additional cost to the client. This is something that should always be included in contractual agreements. A responsible contractor will have professional indemnity insurance cover in any case.

It should also be agreed that there is a level of knowledge and/or skill transfer performed as part of the contractors’ assignment. This will mean that permanent employees, and the organisation at large, should benefit from working with the specialist contractor; this means that they may be able to perform similar tasks going forward, without the need for external support.


I hope that I have been able to shed some light on a subject that is often considered a bit of a minefield. That you are now able to make a more informed decision when reviewing the IR35 status of an assignment, are better equipped when it comes to considering what type of resource you actually require, and can ensure that you are engaging a contractor correctly in order to gain maximum benefits.

Please ‘like’, share, comment with your opinion, make suggestions for future content, print & stick on the notice board, take to the pub to discuss with your friends/colleagues, or simply click X and forget this ever existed.  Regardless, I thank you for taking the time to read this.

By Dean Cordingley, Senior Manager


Recruitment , See all , Public Sector
Add your comment
Please confirm you are human by typing the text you see in this image: