Local Government Lawyer Insight July 2017 LocalGovernmentLawyer 6 made between the status of a worker as an employee versus a worker who is operating as a business. At present, not enough attention is being paid to the contractor’s business model to come to a proper determination of the workers status. More questions need to be asked.” Cottam says: “The local authorities need more education. They won’t change unless there is more information made available.” “Local authorities will be pushed into looking at alternative options,” says Yazdi. “We estimate that the true impact of IR35 will be felt in the next three to six months. You could foresee skills shortages in councils - especially in planning, adult social care and commercial.” Many local authorities depend on temps for some areas of legal work - not least because it can be all but impossible to recruit permanent staff at current pay salary levels. Could tariffs for temps rise in order to make it viable to work as employees? “Locums are really critical in local government,” says Cottam. “We expected rates to go up but that has not happened yet.” She is finding, however, that “the more senior the contractor, the more likely the local authority is to look at the issue laterally”. HY Legal is expecting locums to leave the sector rather than lose pay. “Many have advised they were looking at jobs in- house or in the private sector,” says Yazdi. Cottam is also seeing “a lot more people taking on a permanent role”. She suggests one sticking plaster solution: “We will have to backfill with less experienced, less expensive people.” There is no question that some people have been ‘pretending’ to be independent contractors under the new rules but are far closer to employee status - in particular those working for over a year in the same role and from the premises of a local council. But there are others who are genuinely independent - often working from home, deciding their own hours and advising a number of organisations. Elsewhere in the public sector If local authorities do decide they want to take a more nuanced (and possibly fairer) approach, they can look to what is happening in other parts of the public sector. NHS Improvement (the body responsible for overseeing foundation trusts and NHS trusts) had to withdraw its previous guidance in May saying that “all locum, agency and bank staff were subject to PAYE and [should be] on payroll”. A Royal College of Nursing (RCN) spokesman told Local Government Lawyer: “It’s clear this [previous guidance] was an ill-judged move that seems to have been rushed through with insufficient consultation and little thought to the impact it would have on staff.” The blanket approach had “sparked widespread problems across the health service…as agency staff turned down shifts or failed to turn up for work”, according to the RCN. In its volte-face, NHS Improvement stated that its previous guidance “was not accurate”. It now says that determinations must be done on a “case-by-case basis”. It adds that each “consideration must be conducted fairly, accurately and take into account all relevant factors, including representations which may be provided by the individual”. Regarding HMRC’s calculator, it says: “This tool does not negate the necessity for careful case-by-case scrutiny.” Organisations acting for consultants are hoping that the public sector will become more sceptical about HMRC’s calculator. And, even if legal departments do not have great experience of tax, they will be familiar with the broader arguments. Julia Kermode, chief executive of the Freelancer & Contractor Services Association, told Local Government Lawyer: “Creating a tool that is distinct from case law is unfair and will lead to some being incorrectly deemed as caught by IR35, and will, therefore, result in these people challenging the tool’s outcome.” Meanwhile, Dave Chaplin, CEO of ContractorCalculator (a portal for freelancers) said: “The HMRC tool only asks a maximum of 16 questions. You simply cannot capture the nuances of every IR35 case in that many. We tried, but ended up with 101.” In deciding to be cautious on IR35, local authorities are aiming to reduce the risk that they are exposed to over picking up the tax and NI bills of people who are not genuinely working independently. But councils are usually also taking on the extra cost of paying employer’s NI at the standard rate of 13.8%. Had the private sector also been brought into the new IR35 net, then local government could have ridden on the back of companies which are used to challenging HMRC and which would have viewed the IR35 calculator in a less reverential way. The government aims to extend the new IR35 legislation to cover the private sector at some stage. But we do not know when that will happen. In the meantime, local authorities may need to take a more circumspect stance if they want to continue accessing the short- term recruitment market in the way they do today. Neasa McErlean is a freelance journalist “Creating a tool that is distinct from case law is unfair and will lead to some being incorrectly deemed as caught by IR35, and will, therefore, result in these people challenging the tool’s outcome.”