Re: This does not compute
No. That's not the case. You could be on the payroll after one month.
Believe it not, this is actually a concession by the taxman/George Osborne.
In the previous recent statement on redefing the defintion of self-employment, freelance work and IR35 status, HMRC had proposed, from day one, to ignore contracts, ignore existing case law and ignore existing status tests (mutuality of obligation, substitution, direction and control (that's the how, rather than what and when)) [pass anyone and you are *not* an employee].
What HMRC proposed (and may still be proposing) was contacting the client and asking them whether or not they thought the contractor was under the employer's direction and control - knowing full well that somebody in the personnel department is not in a position to make this judgment - but would almost invariably reply "Yes" - and would instruct them to add the contractor to the payroll and begin deducting tax and NI as though they were an employee - unless the contractor agreed to have their own PSC payroll supervised by the engaging client - and make tax and NI deductions as though they were an employee of the client.
The contractor would be free to appeal the decision and if HMRC agree that he/she should be treated as self-employed, then they will refund what's due once he/she has done their annual tax return.