Contractor JSL & IR35 Compliance: How Confident Are Businesses?

Our latest survey reveals high levels of confidence around contractor compliance, but many organisations are still relying on existing processes rather than making significant changes.

Earlier this year, the conversation around contractor legislation shifted. IR35 was no longer simply something organisations needed to understand. Joint & Several Liability (JSL) brought a renewed focus on contractor supply chains, supplier due diligence and the potential risks further down the chain.

Following our contractor legislation webinar earlier this year, we have now surveyed attendees to find out what businesses are actually doing. We asked organisations about their approach to contractor compliance, their confidence in their contractor supply chains, their biggest concerns and what support would be most valuable.

The results point to a market that is largely confident in its existing approach but also highlight some important questions about how that confidence is being maintained.

Confidence is high. But has the approach changed?

The majority of respondents remain confident in the compliance of their current contractor supply chain.

57% described themselves as very confident, while the remaining 43% were fairly confident.

On the surface, that's encouraging, but there's an interesting contrast. 60% have made no changes to their approach to contractor compliance since April.

Meanwhile, 14% had made some changes, 14% had made significant changes and 12% were currently reviewing their approach.

So, while confidence is high, more than half of the organisations responding haven't changed their approach. That raises an important question: Is confidence based on a recent review of your processes, or confidence that your existing approach is already robust enough?

That's an important distinction. An established process may well remain appropriate, but organisations should be able to demonstrate why they are confident in it, particularly as contractor engagements, supply chains and legislative responsibilities continue to evolve.

IR35 remains a big concern, despite the focus on JSL

Of all the issues raised in the survey, IR35 was by far the most commonly identified.

86% of respondents identified IR35 compliance as one of their biggest concerns around contractor engagement.

Despite the off-payroll working rules having been in place for several years, IR35 continues to create practical challenges for organisations.

The legislation requires clients to take reasonable care when determining employment status, and HMRC’s ‘off-payroll working’ guidance highlights the importance of accurate records, applying the employment status principles correctly and reviewing processes when circumstances change.

In practice, that means IR35 compliance shouldn't necessarily be viewed as a one-off assessment exercise. Working practices, contracts and roles can all change, as can the way an organisation engages and manages its contractor workforce.

A process that was appropriate when it was introduced may still be working effectively today, but organisations need to be confident that it reflects their current contractor population and working practices.

JSL is putting the supply chain under the microscope

43% of respondents identified Joint & Several Liability as a concern.

This is significant because JSL broadens the compliance conversation beyond the individual contractor engagement. It places greater emphasis on understanding the wider supply chain and the organisations involved in providing contractor resource.

For businesses, that makes questions around supplier assurance increasingly relevant.

Who are your contractors being supplied through? What checks are carried out on recruitment partners and other intermediaries? How regularly are those relationships reviewed? What evidence is retained? And how much visibility do you have over what happens further down the supply chain?

Umbrella company due diligence was also specifically identified as a concern by several respondents.

This is particularly relevant for organisations working with multiple recruitment suppliers, umbrella companies or other intermediaries. As the number of parties involved increases, maintaining clear oversight of the entire supply chain can become more complex.

Supplier assurance therefore isn't simply about carrying out checks when a new supplier is appointed. Organisations should consider how they maintain visibility over their supply chain, what standards they expect suppliers to meet and how they evidence the checks and controls they have in place.

 What support are businesses looking for?

We also asked respondents what type of contractor compliance support would be most valuable to their organisation.

30% selected contractor compliance health checks. The same proportion selected JSL and IR35 guidance, and future webinars on legislative updates.

At the same time, 57% said they didn't require support at the moment.

That finding is important. It reflects the confidence seen elsewhere in the survey and suggests that many organisations believe their existing approach is working effectively.

For those seeking additional support, the responses point towards a preference for practical guidance that helps businesses understand what contractor compliance means for their organisation.

That could mean validating an existing process, identifying areas that haven't been reviewed recently or gaining greater visibility of the contractor supply chain. Ultimately, the focus is on understanding where they stand and where their approach may need strengthening.

What should "good" contractor compliance looks like

There isn't a single checklist that will work for every organisation. The appropriate approach will depend on the size and structure of the business, the number and type of contractors engaged, the way those contractors are supplied and the wider supply chain involved. There are, however, some fundamental questions worth considering.

1. Can you demonstrate reasonable care?

Having an IR35 policy is only part of the picture. Organisations also need to consider how determinations are made in practice, who is involved, what information is considered and how decisions are documented.

HMRC's client guidance specifically highlights the importance of taking reasonable care and periodically reviewing the processes being applied. A consistent approach also helps ensure that different contractors, departments and hiring managers aren't inadvertently applying different standards.

The ability to evidence how a decision was reached can be just as important as the determination itself.

2. When did you last review your contractor population?

Contractor engagements aren't necessarily static. Working practices can develop over time, responsibilities can change and the reality of a role may begin to look different from the circumstances on which an original assessment was based.

The guidance makes clear that material changes to terms and conditions or working practices can require a new determination. Regularly reviewing your contractor population can therefore help identify where circumstances have changed and an existing determination may need to be reconsidered.

3. How well do you know your supply chain?

JSL makes supplier due diligence increasingly important.

Organisations should understand who sits within their contractor supply chain, how contractors are being engaged and what controls suppliers and intermediaries have in place. Where multiple recruitment agencies, umbrella companies or other parties are involved, clear visibility and defined standards become particularly important.

It's also worth considering how supplier checks are documented and reviewed over time, rather than treating due diligence solely as an onboarding exercise.

4. Could you evidence your processes if challenged?

Perhaps the most important test of a compliance process is not simply whether an organisation believes it is compliant, but whether it can demonstrate the steps it has taken to reach that position.

That means having appropriate records, clear responsibilities, consistent processes and evidence of the checks and decisions made throughout an engagement.

Good compliance isn't only about reaching the right answer. It's about having a robust and defensible process behind it.

Supporting contractor compliance

Spectrum IT works with organisations to help them understand and manage the compliance requirements surrounding their contractor workforce.

The level of support will be different for every organisation. For some, it may simply mean independently reviewing an established process. For others, it could involve identifying gaps or introducing greater consistency and visibility across contractor engagements and the wider supply chain. We can support organisations with a range of contractor compliance requirements, including:

IR35 guidance and assessments
Helping organisations understand their responsibilities and apply a consistent approach to contractor engagements.

Contractor compliance and IR35 health checks
An independent review of existing processes to identify potential gaps and areas for improvement.

IR35 Portal
A dedicated platform to support consistent IR35 assessments, documentation and record keeping.

Off Payroll Protect
IR35 insurance protection designed to provide additional reassurance around off-payroll working compliance.

JSL guidance
Support in understanding the implications of Joint & Several Liability and what it means for your contractor supply chain.

Supplier due diligence and best practice
Helping organisations consider their supplier due diligence and contractor supply-chain processes.

Legislative updates and webinars
Keeping organisations informed as contractor legislation and HMRC guidance continues to develop.

The key takeaway

The findings don't necessarily suggest that businesses need to change what they're doing. For many organisations, existing processes may already be comprehensive and appropriate.

What they do highlight is the importance of making sure those processes remain relevant to the way contractors are engaged today, and that the confidence businesses have in their approach can be supported by clear, consistent and well-documented practices.

For organisations engaging contractors, the question isn’t simply: ‘Are we compliant?’ It’s: ‘Can we demonstrate that our processes remain appropriate for the way we engage contractors today?’

If you're reviewing your contractor compliance processes, considering your JSL exposure or simply want a second opinion on your current approach, we'd be happy to have an informal conversation.

Speak to a Spectrum IT contractor compliance specialist

Survey methodology: The percentage findings in this article are based on the completed responses to Spectrum IT's contractor compliance survey, shared with registrants of our contractor legislation webinar. The findings reflect the views and experiences of those who responded and should not be considered representative of the wider market.