The Revival of the Gig economy: How a Legislative Fix in the UK is Changing HR's Approach

In the dynamic landscape of the UK workforce, freelancers have long been the unsung heroes, offering expertise and flexibility to businesses while avoiding the overheads of full-time hiring. However, recent legislative changes in the UK's off-payroll working rules, commonly known as IR35, had HR directors treading cautiously. But now, thanks to a crucial fix in the legislation, the tide is turning, and Contractors are once again in the spotlight.

The Impact of IR35

Since the rollout of IR35 in the public sector in 2017 and its extension to the private sector in 2021, HR directors faced increased pressure and risk when engaging with freelancers operating through limited companies. The burden of assessing employment status fell on hiring firms, leading many to adopt risk-averse strategies, including blanket bans on hiring freelancers or insisting on temporary PAYE contracts.

The Flaw in the System

A critical flaw in the legislation exacerbated the situation, causing double taxation for hiring firms in cases of misclassification. This financial deterrent further discouraged firms from engaging with freelancers, limiting their hiring options and stifling innovation.

The Legislative Fix

However, the tide has turned with the recent legislative fix, which rectifies the double taxation issue and restores balance to the system. With the Finance Bill receiving royal assent on 22nd February, the fix is set to take effect from 6th April 2024, offering much-needed relief to HR directors and hiring firms.

The Impact of the Fix

The amended rules ensure that taxes already paid by the contractor's company will not be levied again, bringing fairness and predictability to tax liabilities associated with contractor engagements. This reduction in tax risk, ranging from 12.5% to 15% of the contractor's earnings for most firms, eliminates a significant barrier to hiring freelancers.

Looking Ahead

As HR directors and firms become acquainted with the legislative changes, they can reconsider blanket ban policies on hiring limited company contractors. The reduced tax risk and increased clarity surrounding IR35 assessments pave the way for a more dynamic and adaptable business landscape.

Embracing a Flexible Workforce

With the resurgence of freelancers, businesses can once again tap into a pool of talent without the constraints of traditional hiring models. The path to engaging a flexible and skilled workforce has become less daunting, heralding a new era of innovation and collaboration in the UK job market.

In Conclusion

The legislative fix to IR35 marks a significant turning point for HR directors and hiring firms in the UK. By addressing the flaws in the system and reducing tax liabilities, the stage is set for the revival of freelancers, driving innovation and growth in the evolving landscape of work.

Written by: Emma Douds | [email protected]