AWR reveals the true cost of IR35 to employers

The Agency Workers Regulations that come in to force on 1st October 2011 allow recruiters and employers to quantify, for the first time, the real cost of IR35.

Whilst the Regulations have steered away from direct comparisons to IR35; preferring instead to rely on the broader definition of ‘being in business on your own account’ it has already become widely accepted that assignments outside IR35 are likely to be considered as outside the scope of the AWR.

The direct result of this is that for the first time, since the introduction of IR35 over 10 years ago, there is now a real and quantifiable cost, or saving, that can result by accurately establishing the status of the assignment.

If a hirer was looking to engage a worker, after the Regulations come in to effect, and that worker was comparable to an employee earning £50,000 per annum the impact becomes clear.

If the worker was engaged through their own limited company on a business to business relationship with the working arrangements, relationships and contract clearly indicating a status outside of IR35 then the daily rate would be £217 per day.

If that same assignment were to be both inside IR35 and in scope of the AWR then the rate would have to increase to £260 to meet the comparable pay requirements.

This difference of £43 per day, or an effective rate increase of around 20%, should provide enough encouragement, and motivation, for hirers to get to grips with IR35 and ensure, where appropriate, relationships become aligned.

With an increased annual cost of nearly £10,000 per worker this provides a real opportunity for clients to make significant savings by dealing with Sand Resources.

Article reproduced by kind permission of Professional Passport. 

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