IR35 - Contract with 80% time, 20% deliverables.

[willendure]

Spoke to a recruiter recently and was told if I got the contract it would be billable 80% of the money on day rate time alone. The other 20% would be paid upon completion of a set of "deliverables" that are written into the contract and agreed up front. He said all the contracts his business recruits for are done this way, and that this arrangement makes it much less likely that the contract can be considered inside IR35 because of this. This is done in 3-month blocks, so you get 80%, 80%, then 140% pay over the 3 months assuming all goes to plan.

Agreeing the 20% up front would be hard when entering a new contract, since there would be no sure way of knowing whether you can deliver them or not. For example, you might be required to get something done but you are entirely reliant on some other persons work also being in place to achieve that. So the first block might be a bit risky, but once you know the score, it seems to me that a bit of negotiating around the 20% should lead to getting some sensible and achievable things in there.

Even agreeing on a few high levels goals strikes me as being potentially useful on getting some commitment from the client. They would actually have to think things through a bit, instead of winging it and providing no forward vision, as is often the case on agile projects. For that reason also, the idea had some appeal to me.

Has anyone heard of this before? Is it in fact going to help ensure a contract is solidly outside of IR35?

[WTFH]

To me that sounds more like a permanent job than anything. You get your quarterly bonus based on you hitting objectives.

[ladymuck]

This is an agency? Does the client know that's how they are going to pay you and are they signed up to provide the confirmation needed to release the withheld 20%?

If the client doesn't sign the timesheets but they agree you met the deliverables will you only get 20% instead of 100%?

[jamesbrown]

Has anyone heard of this before? Is it in fact going to help ensure a contract is solidly outside of IR35?

Anything designed in a conceited way to try and put the contract outside IR35 will have no effect, at best, and precisely the opposite effect, at worst. Afterall, IR35 is designed precisely to look through all intermediaries, design a hypothetical contract that reflects your working practices, and establish whether that contract is akin to an employment relationship with the end client.

As you describe it, this sounds like a pointless sham. There is no substantive reason to design the contract in this way. Contracts for deliverables are precisely that and they require a detailed statement of work to be agreed upfront, i.e., the specific deliverables you will provide and the timeframe and contingencies.

[hobnob]

It sounds weird to me, particularly by expressing it as "80%". It would make more sense if they said "Your rate is £X/day, then you get an extra £Y for completing these objectives."

The nearest thing I've seen is when plumbers say "We have a call-out fee of £200, then it's an extra £50/hour after that."

[fiisch]

Similar arrangement here with a large client, except the 20% deliverables element is paid monthly.

I don't disagree that is a bit of a box-tick for IR35 (element of financial risk for the consultant if deliverables are not met), however I set my own deliverables (which are then approved by the client) and I haven't heard of anyone not receiving their deliverables payment.

I think in itself it's fine, providing other elements of the engagement support the outside IR35 determination...

[jamesbrown]

I haven't heard of anyone not receiving their deliverables payment

In other words, no financial risk, in practice, which is what actually matters. Unless there's a commercial reason for the arrangement, it would immediately fall apart under scrutiny at tribunal. It may not materially undermine the case if other factors point to an outside position, but it creates a completely unnecessary question about whether there is a commercial relationship. If there's nothing to disguise, you don't disguise it. It may still be a great contract/arrangement, but the window dressing is pointless. I mean, in the case of the OP, the recruiter is upfront about the real reason and it sounds exactly the sort of hairbrained scheme a recruiter would propose ().

On the other hand, holding back a certain fraction of the total value of a contract until the entirety of the work is delivered satisfactorily (in a defined way) is a completely legitimate commercial/risk strategy and one that I encounter every so often and I am generally happy to work with, providing the acceptance criteria are spelled out adequately and it isn't a transparent scam to save a certain fraction of the contract value (afterall, IR35 isn't the only risk out there...).

[dsc]

As others have already stated, if you do a tickbox exercise to make the assignment appear outside when in reality your work falls inside, then it's all pointless. It doesn't matter how it looks like, it's all down to whether you are truly outside or not.

[SussexSeagull]

Looking back my problem would have been deliverables not happening because they had yet to reach a stage where I could work on them.

[sreed]

I had similar on a short contract a few years ago at a mortgage tech startup, in the heady days of ZIRP and loads of free money sloshing around. It was essentially just a tick box exercise as the ‘deliverable’ boiled down to the founder signing off that he was happy with the progress on the project every other month.

I only ever considered it as an academic exercise and at the first sign of him hemming and hawing over it, I’d have taken off.

I later made the mistake of doing a fixed price consultancy job for him which ended in discord and lots of time for not a lot of money, but that’s another story.