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20% of UK businesses would rather axe their contractors than deal with IR35 – survey

Headley_Grange Silver badge

Recent experience from a large tech. company:

Assume engineer on a salary of £50k ~£200/day

Overhead 120%: day rate £440/day.

Overheads are the pro-rated costs of various functions that don’t book to projects (HR, Accounts, IT support, functional management) plus running costs (facilities, rent, utilities, insurance, etc.), holiday pay, sick pay, pension costs, marketing/bidding costs, etc.

So when costing a project this engineer would cost the project £440 per day.

This company loads zero overhead on contractors - mainly because it has tight rules on how they can be brought in - they really have to be specialist and short term - so a contractor charging £500 a day wouldn't be costing a project much more than a senior engineer.

Many companies charge a reduced overhead on contractors, but when the sums are done, and when easy management and offload are taken account of, even higher rates can look OK to companies compared to having to recruit, onboard, manage and sack permanent staff.

Understanding these issues, and discussing them with clients, gives options for bidding and winning work. I've got a breakdown of my company's running costs, including pension/sick assumptions, that I can share with clients who baulk at my rate. I've won work by submitting fixed price against a set of well-defined deliverables because the client couldn't sell my day rate internally, even though the fixed price was more than it would have cost them on day rate cos I built risk into it. This latter approach also gives flexibility because it means you're not being paid by the day, so don't have to be on site to show your face unless really necessary.

IR35, however well, badly or stupidly implemented is going to make life at one end of the contracting business much more difficult. Long-term gigs where you become part of the furniture through the "house" agency for a decent whack are already disappearing. If you want to continue contracting then I think that the answer is to move up the food chain by ensuring that you maintain a set of skills, experience and attitude that companies value enough to pay a premium for.

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