Staying
abreast of the latest tax changes is not the only law interim managers and
their clients need to consider. There is also the small matter of new
regulations on fixed-term contracts, writes Sara Bean
Whether
you are an HR practitioner involved in the recruitment of interim managers or
are moving into an interim management role, there are a number of employment
law and tax issues to keep in mind before you sign that contract. These range
from the thorny issue of IR35, to the Fixed Term Employee Regulations, which
are expected in July.
When
the infamous IR35 ruling from the Inland Revenue came into play in April 2000,
no one had any idea how much impact it would have on the interim management
market. Two years on and the picture is still not clear.
Explains
Michael Deeks, incentives associate at international law firm Allen &
Overy: "IR35 was introduced by the Inland Revenue because there was a
perception that contractors, who would otherwise have been regarded as
employees of clients, were operating through personal service companies to
avoid national insurance contributions by paying themselves in dividends rather
than salary."
The
storms of protest from the IT industry, which has largely thrived on the use of
IT contractors, and of interim managers and consultants against IR35 have so
far been dismissed. At the end of last year, the Professional Contractors
Group, which challenged IR35 all the way to the Court of Appeal, lost its case.
So for the moment, at least, it looks like IR35 is here to stay.
Most
interim managers continue to claim they are providing a consultancy service
rather than fulfilling an employee’s role, so are not applicable to IR35. In
fact, according to a recent survey of registered interim managers at interim
agency Impact Executives, 82 per cent of interim managers have registered their
company as not applicable for IR35.
Says
David Bradford, chief executive at Impact Executives: "Given the choice on
the tax form, interim managers are choosing to register their company as not
applicable for IR35. We have found that it hasn’t had as dramatic effect as
first suggested.
"There
seems to be two reasons for this – interim managers tend to come in to do a
particular assignment and/or they are at the senior end of the scale, so come
in on a consultancy basis."
It
is worth noting, however, that of the interims quizzed, a whopping 72 per cent
had received no confirmation of their IR35 status. This shows that either the
inland revenue is still finding it tough to manage claims, or it is – as many
suspect – not using IR35 to crack down on interims.
Employee
status
What
if you do hire an interim as an employee or, indeed, if you decide to take on
an interim assignment as an employee? The latest draft of the new regulations
on fixed-term employees, which come into force in July, may also have some
impact. Allison Healy, associate at Allen & Overy, says: "The
Fixed-Term Regulations are similar in form to the regulations governing
part-timers. They aim to ensure that employees on a fixed-term contract are not
treated any less favourably than those on a comparable permanent contract –
including in relation to pay and pensions – unless that treatment can be
objectively justified."
This
means you must take a look at the terms and conditions of the contract, which
may include ‘compensating’ an employee who is not party to the company pension.
Although most interims already have their own health insurance and pensions,
these regulations are worth keeping in mind if you intend to take on an interim
as an employee.
Do
not assume, warns Fiona Coombe, head of legal services at the Recruitment and
Employment Confederation, that because interims tend to fill a senior
management role, they are exempt from this kind of consideration. "Always
remember," she says, "any legislation that affects the ordinary
worker will also affect the interim manager."
But
if you are serious about making a career as an interim, employee status may not
be an option. Like many of the larger interim agencies, Impact Executives
states that all its interims must first be registered as a limited company in
order to sign on with them.
And
that’s not all, warns Bradford: "We have also found that professional
indemnity insurance is increasingly important and we are shortly going to
demand it."
This
is an important point. If the worst does happen it’s always best practice to
ensure that you are properly covered. Says Bradford: "Our argument is if
you stand under a tree for 10 years, you have more chance of being hit."
Resources
Allen
& Overy 020-7330 3000,
www.allenovery.com
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Impact
Executives 020-7314 2011,
www.impactexecutives.com
Recruitment
and Employment Confederation 020-7462 3260
