With IR35 off payroll reforms due to hit the private sector in April 2020, HSBC has decisively told its limited company contractors – “quit or go perm”.
As reported by ContractorUK, HSBC will stop engaging PSC contractors from this September, saving the banking giant from having to assess their IR35 status under the new rules.
All those affected, at key units such as HSBC Digital, have been told that after one further contract extension, they must choose between being terminated or becoming employees.
They have added a caveat for certain contractors, saying they can stay on if their company supplies services via a third-party from September.
Is HSBC “throwing the baby out with the bath water”?
While it’s clear why HSBC are doing this, there are concerns it could backfire if they go ahead with it.
Sources suggest that experienced contractors won’t bow to pressure to becoming permanent or working through a third party and there are fears the ultimatum could trigger a contractor exodus, as seen in the public sector when the reforms were introduced.
Seb Maley of tax specialists Qdos Contractor called it “a worryingly short-sighted approach akin to using a sledgehammer to crack a nut”.
He is far from alone in that view. Bowers Partnership, a recruiter of niche financial contractors commented:
“As we’re still several months away from the draft legislation..for HSBC to make such a bold move, assuming it transpires, seems somewhat premature.
Even if it doesn’t, surely most of the contractor workforce at HSBC will now be limbering up for a serious summer of job-hunting? There are four productive months between now and September, and the good contractors should be able to bag a new role elsewhere”.
Senior recruiters expect that if HSBC does actively stop engaging PSCs directly, other private sector hirers may follow suit and this could become a universal trend across British business. Indeed many companies already only engage contractors via a third party such as a recruitment agency or payroll firm. However this in itself won’t circumvent the IR35 reforms – legally it will still fall on the original client to make the IR35 determination.
The bottom line is to think ahead and seek expert advice. Joe Taffurelli, Head of Group Operations at Liquid Friday said:
“HSBC’s solution to the problem of IR35 is radical and will likely negatively affect them in the future. I would urge all engagers of contingent labour to partner with experts. We have completed thousands of IR35 consultations and have often found that there is a happy medium. Treating your contingent labour unfairly in this way is not reasonable or forward thinking.”
Knowledge is power
Whether you are a contractor, recruitment agency or hirer, now is the time to upskill when it comes to IR35.
Liquid Friday’s IR35 hub explains IR35 through a series of user-friendly videos. You can also download a free guide and take an independent IR35 status test.