Aggressive efforts are being taken by agencies to move their Public Sector Company (PSC) workers to a PAYE model before 6 April when the IR35 reforms come into force. Contractors are being warned about severe pay cuts along with PAYE, if they continue to work under a PSC and their contracts fall inside IR35.
But the main reason why agencies are so hell-bent on convincing the PSC workers to move to an umbrella mode of working is to cover the costs they face from a combination of employer National Insurance (NI) and Apprenticeship Levy.
What does this mean?
The original pay of PSCs will be reduced by 12.1% - an approximate number the agencies are starting with to cover the standard monthly employer NICs. Some agencies will also charge 0.5% more from the contractors to cover the Apprenticeship Levy costs – which makes the total reduction to be around 12.5%.
No notifications by agencies
Unfortunately, many contractors have stepped forward to complain that recruiters have failed to notify them of that fact that they are cutting 12.5% of their original pay. Since it’s such a blow to the contracting community, the least agencies can do is to keep them updated about the changes that will take place in less than 3 weeks!
Umbrella is the “only” option
In another news, temporary IT job openings at selected public sector bodies now specify umbrella mode of employment as mandatory. This clearly means if an IT contractor operated through a limited company, he or she can’t apply to any jobs because of this restriction. Or they keep their limited company but have to work through the umbrella for any work that specifies it.
No wonder so many contractors are walking out of the public sector! It’s shocking to know that they are not being given the basic right to choose an employment model that suits best for them. Not every contractor would be comfortable switching to PAYE.
Good news: Self-employed Class 4 NICs dropped
Announced in the Budget 2017 speech by Chancellor Philip Hammond, Class 4 NICs were set to increase from April 2018 before rising again to 11% in April 2019. Naturally, this was met with heavy criticism by MPs for not honouring the general election manifesto commitment of not increasing the NICs.
We understand that it is less hassle for agencies to use contractors that operate through an umbrella but lack of employment options and new pay deductions have made it quite possible for the flexible workforce to operate in peace.
Now you must be receiving emails from your respective agencies on the same. We request you to forward that information to us, so that we can help you make a proper decision on what should be done next. Also, don’t forget to download your FREE copy of budget report from here and keep an eye on our Twitter account for news updates.