SAP Partner
01.29.2020

IR35 Option 3: Statement of Work Hiring

By Jonathan Hurren

Statement of Work Hiring 

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If you use SAP contractors to deliver projects you will have three options to engage them after April 5th 2020 and the advent of private sector IR35. Information and FAQs on Option 3: Statement of Work below:

Afraid of losing access to the best SAP people? Project delays keeping you up at night? IR35 is coming to the private sector and it will soon put medium and large-sized businesses under the additional stress of making status determinations for contractors operating under their wings.

Three years after launching in the public sector, the anti-avoidance tax legislation is once again a subject of debate that grows more heated as the April 6 deadline approaches. Considering how much the SAP-enabled businesses rely on freelance talent, it is only natural that both clients and contractors are looking for the best course of action.

To clear up the confusion and help our clients, we have created bluewaveCONSULT, a boutique SAP consultancy offering a true IT service model. Our unique solution mitigates the threat of IR35 by using formal Statement of Work (SoW) agreements that effectively take away the responsibility of assessing roles for SAP-enabled clients.

But before we discuss that in detail, let’s have a look at the IR35 landscape and what it has in stock for the private sector.  

IR35 recap and potential risks for SAP-enabled businesses

The IR35 legislation already made a name for itself when it was rolled out in the public sector in 2017. Its core premise was to transfer the responsibility of determining individual contractors’ employment status to public authorities who employ them.

Now that the April deadline for the private sector draws near, medium and large-sized businesses will soon become responsible for auditing their contracted workforce in the same fashion. Following HMRC’s guidelines, clients will need to exercise ‘reasonable care’ in making determinations and providing reasons for their outcome.

According to a study by Chartered Institute of Personnel and Development (CIPD) and the Association of Independent Professionals and the Self-Employed (IPSE), the public sector IR35 rollout left hiring managers struggling with, among other issues, project delays (52%) and hindered access to experienced contractors (51 %).

Although HMRC’s own post-rollout reports downplay the negative impact of the legislation on the public sector and an estimated 170,000 self-employed contractors, the consequences for the private sector can prove even more severe.

Our assessment combined with insights from SAP experts suggests a number of viable risks, some of which include:

Clients lacking resources to determine contractors’ IR35 status

 For many clients, assessing the employment status of all SAP contractors on a case-by-case basis may prove beyond their administrative capacity. In fact, a 2019 Brookson Legal survey found that three in five directors admitted a lack of resources necessary to meet HMRC’s determination requirements. This situation leaves SAP-enabled businesses at a crossroad, with limited options and time running out.

Best SAP talents becoming more difficult to find and engage

Looking to stay safe and avoid HMRC’s scrutiny, some clients will no doubt consider taking a blanket approach and resign from the off-payroll workforce altogether, as it was the case in the public sector. That means SAP professionals will face the dilemma of being forced inside IR35 under PAYE terms or looking for employment elsewhere.

The UK job market is already in a state of severe IT skills shortage and the drainage of talent pools will be even higher once the legislation comes into force. While some freelancers will probably accept the new landscape and work inside IR35, the most-skilled SAP people will find themselves in a position to charge premium rates for a select number of clients.

Costs of SAP programmes going up

 Given the limited access to top-of-the-line SAP experts, clients that are not prepared for the changes and have no resources to make determinations on their own will face a dilemma of paying best SAP people more to even out the additional costs of IR35 or face a disruption that could stale or completely derail projects in progress.

While there is still some time before the April deadline, we are already observing first signs of these changes affecting clients and contractors. If you’re interested in a more in-depth assessment of potential IR35 risks, you should download our free report here .

IR35 Solution: Statement of Work (SoW) Model

 As a concept, Statement of Work (SoW) is an outcome-based agreement between a client and a service provider (in this case a SAP hiring agency or consultancy), in the course of which the service provider commits to deliver on a specific project for the client.

At a bare minimum, a Statement of Work should specify the nature of the service, expected outcomes and quality requirements as well as timeline and milestones for progress assessment.

This model makes the service provider fully responsible for the outcome of the project and, under IR35 premises, determining the employment status of the contractors provided to the end client. In other words, it minimizes the risk of IR35 repercussions for the client and places it on a third party instead.

But the benefits of using a Statement of Work don’t end there.

4 Benefits of SoW for SAP-enabled programmes

Reduced risk of non-compliance

HMRC’s effort to battle non-compliance in the public sector was motivated by potentially substantial gains for the Government, with an estimated £550 million in income tax harvested during the first year following rollout .

Once the April deadline arrives, HMRC is bound to put even more force into controlling private sector clients for adherence to the new regulations and making sure that status determination compliance is met. In case it is not, HMRC has the power to launch an investigation into company records and collect due PAYE and National insurance directly from the client.

A Statement of Work model essentially puts a ‘firewall’ between the contracted workforce and the end-client effectively mitigating any risk of repercussions for non-compliance, including fines and penalties.

Access to exclusive SAP talent pools

In a study “IR35: A Ticking Timebomb ?” commissioned by Brookson Legal, 32% of surveyed businesses expressed concerns they may lose skilled workforce as a result of the legislation, with 39% expecting shrinking talent pools of contractors.

We have already said that the IR35 rollout will force SAP professionals to look for clients who provide case-by-case determinations rather than a safety-first, blanket approach. However, it also means they will turn to consultancies and hiring agencies who can keep them in the loop and handle the regulations with compliant methods such as State of Work arrangements.

Businesses that communicate with and build working relationships with those service providers ahead of IR35 can gain access to exclusive talent pools of SAP people that remain outside IR35. And that’s a substantial competitive edge in the market where IT skills are already in short supply.

Consistent quality of work

A SoW document clearly defines client requirements on a per-project basis. That includes expectations regarding SAP contractors’ skill set and experience. By embracing this model, with a consultancy or hiring agency as a proxy, businesses can achieve even quality of service in every department that benefits from off-payroll SAP expertise.

Since Statement of Work focuses on a genuine outcome rather than just providing SAP talent on a daily basis, it puts the quality of deliverables in focus. As an added benefit, the performance of service providers can be easily monitored on milestones so clients know they get what they pay for from day one.

Project delivery fully offloaded to service providers

 Project delivery for SAP-enabled programmes requires ample human resources, both on the IT and administrative front, to run smoothly. With the additional layer of compliance requirements imposed by the new legislation, part of those resources will become strained or not available at all.

The Statement of Work model makes third-party consultancies an integral part of every project they commit to deliver. That means clients gain access to external resources that are fully dedicated to producing key deliverables defined in the document.

With this new approach to launching, managing and finalising projects, clients will be able to focus on developing great products and services instead of burning time on low-level administrative duties or shuffling IR35 paperwork. 

Banish the spectre of IR35 with bluewaveCONSULT

In a partnership with leading SAP experts, bluewaveCONSULT provides an alternative to freelance contractors through a service delivered under a formal Statement of Work (SoW). Our true IT services model will meet all your project-related needs, including finding, screening and hiring the best SAP people in the game.

This is the last call to prepare for the coming changes and we will gladly help you do just that. And if you’re already our client, it’s on the house.

Are you an SAP professional or Company requiring SAP expertise or advice on IR35? Let us know at hello@bluewaveselect.com or +44 (0) 1423 559 559

 

 

 

 

 

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