Reply to: A view of IR35 from a hiring manager

[vetran]

Approximately 7 years ago I was at a dinner celebrating the new undersea fiber link between Manchester and Dublin and happened to have a chat with a guy I've known for a few years from "Thoughtworks" he was bemoaning the fact that he couldn't recruit decent software engineers. I asked him if he was still offering £30k for a Senior Developer, he said yes, and I said "Well there's your answer!" - his response of "Not everyone is motivated by money!" nearly had me choking on my Cognac!

don't worry soon we will have highly skilled migrants over on £25K.

[Zigenare]

All the highly paid devs I know became contractors. Most of the permies I've worked with have been *woefully* underpaid. I once joined a company as a permie, couple of years experience total on something like 35k, to find another guy there was on 28k. He'd been with the company *fourteen years*. He was doing virtually the same thing I was hired for.

Every time I see this situation I wince but I see it a lot. He was too scared to leave.

Approximately 7 years ago I was at a dinner celebrating the new undersea fiber link between Manchester and Dublin and happened to have a chat with a guy I've known for a few years from "Thoughtworks" he was bemoaning the fact that he couldn't recruit decent software engineers. I asked him if he was still offering £30k for a Senior Developer, he said yes, and I said "Well there's your answer!" - his response of "Not everyone is motivated by money!" nearly had me choking on my Cognac!

[FIERCE TANK BATTLE]

too much of a generalisation. My contract rate now is below what my last permie salary in 1996 equates to now. Granted, I have less responsibility e.g. for staff, but my technical responsibilities in terms of financial risk to the client are probably greater.

Don't forget that you also have to factor in to any comparison the cost of providing employee benefits. So the comparison isn't always so clear cut.

All the highly paid devs I know became contractors. Most of the permies I've worked with have been *woefully* underpaid. I once joined a company as a permie, couple of years experience total on something like 35k, to find another guy there was on 28k. He'd been with the company *fourteen years*. He was doing virtually the same thing I was hired for.

Every time I see this situation I wince but I see it a lot. He was too scared to leave.

[JohntheBike]

Might not be the case now, but when i was in the early days of my contracting career (circa 1995), a senior manager at a client told me that the actual cost of employing a permie wasn't a kick in the arse off 2 x annual salary.

interesting, I was reluctant to quote the figure as a 40% uplift.

[Zigenare]

Might not be the case now, but when i was in the early days of my contracting career (circa 1995), a senior manager at a client told me that the actual cost of employing a permie wasn't a kick in the arse off 2 x annual salary.

About par for the course.

AtW has employees, admittedly they're squirrels and he pays them peanuts but he should be able to help with actual costs...

[TestMangler]

too much of a generalisation. My contract rate now is below what my last permie salary in 1996 equates to now. Granted, I have less responsibility e.g. for staff, but my technical responsibilities in terms of financial risk to the client are probably greater.

Don't forget that you also have to factor in to any comparison the cost of providing employee benefits. So the comparison isn't always so clear cut.

Might not be the case now, but when i was in the early days of my contracting career (circa 1995), a senior manager at a client told me that the actual cost of employing a permie wasn't a kick in the arse off 2 x annual salary.

[JohntheBike]

I really don't understand the article - umbrella companies have been an option before IR35, why would IR35 cause them to start replacing permies with contractors now?

Permies are significantly *cheaper* than contractors. Because most permies treat their job like it's their mother's teat. A stable 9-5. When they get a cake on their birthday they are *overjoyed*. They are almost always massively underpaid, but they don't care because they don't like change and scary unpredictability. So they're nice and cheap because a 3% raise every year is enough to keep them smiling.

Then there are no training costs to worry about with Dave The Permie who has been with the company for 15 years.

If you force the permies into umbrellas with no job security they'll not only be forced to become savvy about rates (either through the nature of learning how the industry operates, or because they get kicked out of their first role after 3 months when the project is over and forced to sink or swim), but they will start negotiating and shifting companies and leaving behind huge knowledge gaps and debt.

But mostly I don't understand why the author of the article things IR35 will cause people to replace permies with umbrella as opposed to anything else.

Permies are significantly *cheaper* than contractors.

too much of a generalisation. My contract rate now is below what my last permie salary in 1996 equates to now. Granted, I have less responsibility e.g. for staff, but my technical responsibilities in terms of financial risk to the client are probably greater.

Don't forget that you also have to factor in to any comparison the cost of providing employee benefits. So the comparison isn't always so clear cut.

[original PM]

I really don't understand the article - umbrella companies have been an option before IR35, why would IR35 cause them to start replacing permies with contractors now?

Permies are significantly *cheaper* than contractors. Because most permies treat their job like it's their mother's teat. A stable 9-5. When they get a cake on their birthday they are *overjoyed*. They are almost always massively underpaid, but they don't care because they don't like change and scary unpredictability. So they're nice and cheap because a 3% raise every year is enough to keep them smiling.

Then there are no training costs to worry about with Dave The Permie who has been with the company for 15 years.

If you force the permies into umbrellas with no job security they'll not only be forced to become savvy about rates (either through the nature of learning how the industry operates, or because they get kicked out of their first role after 3 months when the project is over and forced to sink or swim), but they will start negotiating and shifting companies and leaving behind huge knowledge gaps and debt.

But mostly I don't understand why the author of the article things IR35 will cause people to replace permies with umbrella as opposed to anything else.

That's not strictly true - if you are trying to raise a family then the security of a 'permanent' position (and the stuff that comes with it) can be worth so much more than the extra contracting dollar.

For example - both me n the missus work - now lets said when we had kids the only contract I could get was the other side of the country - think of the pressure this puts on the missus, how much would I not see the kids - all for ultimately nothing as the contract ends and suddenly I am at home looking for a new contract - need the money so take whatever at the other side of the country.

Or you can do what I did and work for a company which has great benefits and so since about 2003 I have pretty much been working from home as needed, could come and go from office pretty much as a pleased and I was able to spend time raising my kids etc. - pension pot is growing nicely, salary is not bad considering the pressure (or lack of), training opportunities etc.

If all you are interested in is money then yes fine - stay single, do not have a family and enjoy the contracting life - but if you desire something more than that then it helps if you look at things through a different lens.

[TestMangler]

If you have your own limited company, arrange for 10% contribution from your company funds into your pension. Arrange a salary sacrifice of however much to make your yearly contribution into your pension within the £40k limit. That way YOUR limited company reduces its employer NI and you reduce your Employee NI. Hopefully this will also keep you below the £50k tax bracket too.

IANAA - but the mechanism as a permy works for me.

Am I missing something here ? That would work if you had funds built up in your company from the past but not on a going forward basis, as and inside IR35 contractor starting now, won't have any ltd company funds and all their income will be taxed at source (minus the pension sacrifice).

[Zigenare]

I really don't understand the article - umbrella companies have been an option before IR35, why would IR35 cause them to start replacing permies with contractors now?

Permies are significantly *cheaper* than contractors. Because most permies treat their job like it's their mother's teat. A stable 9-5. When they get a cake on their birthday they are *overjoyed*. They are almost always massively underpaid, but they don't care because they don't like change and scary unpredictability. So they're nice and cheap because a 3% raise every year is enough to keep them smiling.

Then there are no training costs to worry about with Dave The Permie who has been with the company for 15 years.

If you force the permies into umbrellas with no job security they'll not only be forced to become savvy about rates (either through the nature of learning how the industry operates, or because they get kicked out of their first role after 3 months when the project is over and forced to sink or swim), but they will start negotiating and shifting companies and leaving behind huge knowledge gaps and debt.

But mostly I don't understand why the author of the article thinks IR35 will cause people to replace permies with umbrella as opposed to anything else.

Because he's a clueless fuqwit. Hth, at your service, etc.

[FIERCE TANK BATTLE]

I really don't understand the article - umbrella companies have been an option before IR35, why would IR35 cause them to start replacing permies with contractors now?

Permies are significantly *cheaper* than contractors. Because most permies treat their job like it's their mother's teat. A stable 9-5. When they get a cake on their birthday they are *overjoyed*. They are almost always massively underpaid, but they don't care because they don't like change and scary unpredictability. So they're nice and cheap because a 3% raise every year is enough to keep them smiling.

Then there are no training costs to worry about with Dave The Permie who has been with the company for 15 years.

If you force the permies into umbrellas with no job security they'll not only be forced to become savvy about rates (either through the nature of learning how the industry operates, or because they get kicked out of their first role after 3 months when the project is over and forced to sink or swim), but they will start negotiating and shifting companies and leaving behind huge knowledge gaps and debt.

But mostly I don't understand why the author of the article things IR35 will cause people to replace permies with umbrella as opposed to anything else.

[Zigenare]

Ok ... I'll Bite

1. Salary Sacrifice £40k per year into your pension...

2. Get your company to match your contributions.
(Reducing Employer and Employee NI contributions)

3. When you get to 55 draw 25% TAX FREE.

Totally agree with 1 and 3.

When you say in 2 ... 'company' .... what company ? The end client? .... the intermediary eg. Umbrella .... your Limited Company if you (still) have one ?

As you say I must be a th&ck tw&t as I certainly don't understand who you mean by Company ... does anybody else?

If you have your own limited company, arrange for 10% contribution from your company funds into your pension. Arrange a salary sacrifice of however much to make your yearly contribution into your pension within the £40k limit. That way YOUR limited company reduces its employer NI and you reduce your Employee NI. Hopefully this will also keep you below the £50k tax bracket too.

IANAA - but the mechanism as a permy works for me.

[mogga71]

if you work through an umbrella company , can you ask them to put 40k into your SIPP ?

Yes, that's correct. Paystream will do this. One of the only ones who will. Others offer SS but not directly into your SIPP.

You will need to take the minimum wage but after that you can pay everything (up to 40K) into the SIPP, thus avoiding all deductions. Whats more, as long as you have had you SIPP open for the period, you can backpay for 3 years too. Basically it's the only benefit we have left if caught by IR35.

There are quite a few posts about it on here.

[northernladuk]

if you work through an umbrella company , can you ask them to put 40k into your SIPP ?

Only some and couldn't previously so it's new. Needs a lot of research.

[BR14]

yes