Monday, 19 December 2011

Contracting is business not employment: Read the small print

rate cut for contractsThis post is about a contracting in UK. Some of terms mentioned here will not mean a great deal to people who do not understand the mechanics of contracting or the UK tax systems.

I recently got sent an email by a friend and fellow contractor that contained a link to the following news article:

Feel free to go away and have a read of the article but the gist is this. A well known global financial institution has decided that its is possibly paying over the odds for its contractors and as such it is enforcing a 10% rate cut across the board in an effort to cut costs. It doesn’t want to lose the contractors but it does want to reduce the amount it pays for them and hence reduce the cost of the contractors.

Tyour in a business relationship not an employment relationshiphe feeling of the comments left on the post seem to imply that people are outraged by such a move. The survey results seem to suggest opinion is split. Some people asked if the rate cut is legal or even possibly discrimination?

The answer is a simple one in my opinion. Note: I am not a qualified lawyer nor am I giving legal advice but these are my views on this issue.
Its very important to remember contractors are not employees, contractors  are providing a business service. If you are a contractor in the UK you are entering a business relationship not an employment contract. You maybe a small business, it might just be you employed by your company. You may be part of  larger organisation and there maybe more of you but the principal is the same. If you are in business for yourself and secure contracts with clients the terms of the agreement represent a business relationship. The terms of your contract are governed by the business agreement  that you have entered into. If it says in the agreement that a rate cut can take place legally or at least the rate can be negotiated and you signed up to it then, like it or not there is not much you can do.
Now what’s happened here is what happened to me with a previous client, the line in the contract I had with the agent was worded similar to this, which at the time seemed inconspicuous  “If for any reason we can no longer do business with the client, we will provide you with four weeks notice of termination” Doesn’t seem like much when you read it the first time but the letter and explanation I received made it clear that it was this clause that was being invoked and it went something like this. “We have been advised by the client that they can no longer do business with you at the current rate, so this is your 4 weeks notice…[I got the same nicety of it not being a reflection of your work etc]…The client would like to keep you on but the new offer will be at 10% less than your current rate. Please let us know by email by this date if you wish to extend or if you will be ending the contract at the end of the four weeks.” Having discussed this issue with several legal people who happen to be friends, as a director of my company and business I had a choice, take the new contract or accept that the contract would conclude at the end of the agreement. I won’t say what I did here as that is irrelevant to the discussion.

Now they couldn’t treat employees like this, but you often see business contracts being re-negotiated depending on the terms agreed initially. This is what this is, a re-negotiation of the business deal. The fact there is clause in there that allows this and it has been executed implies a business relationship exists…In my opinion it goes someway to support your IR35 status. Every cloud has a silver lining.
Contracting is Business, not employment. Business can be tough but the risks can be rewarding I guess its up to you whether you want the risk of business relationship or you want to be an employee

What do you think? I’d be interesting in any other views that people have to offer.
Contractor Calculator has some useful advice about avoiding rate cuts in these situations. I guess though that will depend on your ability to negotiate business deals.

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