February 3, 2020

Contracting for Outcomes

In April, the IR35 changes HMRC have already imposed on the public sector will be rolled out to the private sector.  Companies will be responsible for determining their contractors’ employment status and will be fined if found non-compliant.  There will be many grey areas, especially in the early days, and many companies will probably err on the side of caution by applying employee status to everyone.

Contractors might see this as the worst of both worlds – taxed at source but without benefits such as paid vacation and healthcare – and decide to implement Plan B.  A survey by CIPD and IPSE, the professional body for HR and people development, published in June 2018 found that “half (51%) of public sector hiring managers had lost skilled contractors as a direct result of the changes to IR35 regulations and a further seven in ten (71%) also said they were now struggling to hold on to their contractors.”

However, the interesting part is the criteria which put contractors outside the scope of IR35.  One of these concerns mutuality, another deals with supervision and control.  Both go to the heart of the relationship between client and contractor and, I believe, signpost the direction of travel for a new way of working.

Mutuality means neither side is obliged to offer or take work once the current engagement is completed.  It’s virtually the definition of the gig economy, before that term came to be associated with zero hours contracts and exploitatively low pay.  We come together to do a particular project, then we part company.  We may well do business again but there is no pressure on either of us to do so.

Supervision and control means that I, as the contracted party, have control over the way in which I deliver the outcome for which you’ve engaged me.  You, as the contracting party, define the what but not the how.  You can stipulate the deadline but not the hours I work – or where I work.  As a contractor outside the scope of IR35, I have much greater autonomy over how and where I do the work you’ve commissioned me to do.

Think about those two criteria for a minute and you start to see how they might change the nature of work.  Suddenly you’ll treat your contractors as you would an advertising agency or a legal firm.  Rather buying their time to perform a particular role for a fixed period of time, you buy an outcome.  It’s the difference between hiring an actor and commissioning a film.

It’s a change that could have far-reaching implications.  Both client and freelancer must become much savvier about defining scope and acceptance at the start of the relationship.  They’ll both need to understand – and more importantly, articulate – the value of the desired outcome when payment isn’t by the hour or the day.  Clients will have to trust their contractors to deliver.  Contractors’ reputations, and earning power, will stand or fall upon whether they deliver what was asked for (or more) on time.

I believe in the future, we’ll hire smart, talented, self-directed people to deliver a clearly defined outcome and we’ll trust them to get on with it.  You won’t define or micro-manage the process.  We won’t demand they keep office hours or sit at a desk in our offices.  We’ll have reassured ourself up front they’re the right person for this job and we’ll be confident we’ve clearly explained exactly what we need and by when.

Some of you reading this will say “That’s what we do today”.  Congratulations, you’re ahead of the curve.  For the rest of us, it’ll be a big change.  We’ll need time to adapt. There will be growing pains.  In his book Life 3.0, Max Tegmark wrote “We have to win this race between the growing power of the technology, and the growing wisdom with which we manage it.”  It’ll be ironic if it’s a tax-driven change of employment status that shows us the way.

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Here at Changemaker, we support organisations and individuals in delivering sustainable and lasting change.  When supporting change we bring together consultants, associates and interim managers from very varied backgrounds but all with a common desire to see real change realised in a sustainable way in our client organisations. These changemakers not only bring deep skills and experience but also a strong belief that ethics and business can and should be mixed.

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