The contractor and contingent workforce in the UK is steadily growing year-on-year. Whether it’s contractors, temporary workers, consultants and freelancers, these types of workers make up 20-25% of the UK’s workforce.
When utilised effectively alongside your permanent workforce, contractors and contingent workers can add significant value to your business. They allow you to access specific skill sets or additional capacity at pace – but it’s not always straightforward. Without careful management and oversight, contractor utilisation can pose risks. This is why some recruitment providers, such as The Curve Group, offer contractor management services.
So what do contractor management services entail and why are they important? Let’s explain.
Contractor Management Explained
Put simply, contractor management is the process of managing contractors on behalf of a business. Contractor management can span across a range of different focuses and services, including:
- Contractor selection – accessing a network of contractors and selecting the right individuals based on skills, experience and capabilities
- Contract negotiation – negotiating contract terms and conditions that define the cope of work such as the timeline and payment terms
- Contractor onboarding – completing the required background and screening checks prior to commencement to ensure all correct insurance and documentation are in place
- Timesheeting & payroll – providing consolidated monthly utilisation reports and invoices to ensure complete visibility and control of contractor spending
- Compliance checks – supporting the end user to ensure working practices comply with IR35 status determinations
Why Is Contractor Management Important?
There are many reasons why contractor management is important. If you regularly rely on contractors to carry out work for your business, contractor management is pretty crucial for the following reasons.
Compliance
Contractors are subject to different laws, regulations and policies than employees so it’s important to have experts in your corner to manage this. For example, contractor management can help to ensure that your business is utilising contractors in line with all applicable laws and regulations such as IR35 off-payroll tax legislation. Failing to comply can result in significant fines or penalties for your business, and you may also be more likely to get audited in the future.
Mitigate risks
Working with contractors can expose companies to a few risks such as legal liabilities, reputational damage and financial losses. When managed correctly, a business won’t necessarily have to worry about these risks. We’ll talk about the risks of utilising contractors in more detail a little further on in this article.
Optimise costs
Working with contractors can be expensive! The last thing you need is for their time to then be mismanaged and not used efficiently and effectively. Contractor management can help ensure that work is completed to a high standard on time and within budget, avoiding missed deadlines or cost overruns.
The Risks Of Working With Contractors
As previously mentioned, utilising contractors can put your business at risk. Knowing these risks and the implications can really help realise the business case for contractor management.
Legal risks
There are a few legal risks to be aware of when working with contractors. Many of these risks are related to tax legislation. For example, The Criminal Finances Act (Sept 2017) makes businesses vicariously liable for the criminal acts of ‘associated’ persons (such as contractors) who facilitate tax evasion whilst performing services for them. This is a pretty serious one, as it cannot simply be tackled by paying a fine or receiving a penalty. The only appropriate line of defence is being able to demonstrate that a business has reasonable and proportionate procedures in place to prevent tax evasion by contractors.
The second important risk is around IR35. IR35 is a tax legislation designed to identify ‘disguised employees’ in the workplace. These are off-payroll workers who behave and are treated like employees but are not on the company payroll. Therefore, they would be unlikely to pay the same tax and insurance contributions. IR35 compliance ensures that contractors working like an employee pay broadly the same tax and National Insurance contributions as employees. Find out more about IR35 in our employer’s guide to IR35 rules in the private sector.
It’s also important to be aware of and comply with GDPR regulations around data protection and conduct background checks and vet your contractors thoroughly. 40% of employers do not conduct background checks on contingent workers and this exposes businesses to significant risks. Although they are not permanent members of your staff, your contractors may well also have access to personal data, sensitive company and client information and intellectual property. Complete background checks and vet your workers to ensure that their credentials are verified and sound.
Financial risks
When not managed properly, contractors can become costly! For one, a contractor’s day rate is likely to be much higher than the equivalent salaried staff payroll costs. Make sure you only make use of contractors when it makes good business sense to do so.
Using multiple recruitment agencies to engage contractors can also add up, especially when you’re working with a variety of different day rates and markups. Value for money can quickly become diluted and difficult to measure.
The total spend on a contractor workforce can quickly spiral as without a robust process for tracking usage, extensions and spend vs the budgets that were originally signed off, it’s easy to spend a lot more than you initially anticipated. For example, with just 40 contractors on your books across a year, your annual spend could be around £5.5 million per annum!
Using contractors is an effective way for businesses to access specific skill sets or additional capacity at pace. Maximise your contractor workforce’s potential and let us at The Curve Group manage them effectively and efficiently.
Get in touch with us today to find out more. Call 01295 811 486 or drop us an email on [email protected] and let’s start a conversation.
