With changes to IR35 regulation on the horizon, end-client businesses are urgently reviewing the impact they’re likely to face regarding their engagement with contractors and third-party agencies.
Various methods have emerged that agencies and end-clients believe might help them successfully navigate the new legislation.
And while some consultancies are increasingly responding by using statement of work (SOW) engagements, encouraged by the view that this could be an easy way around IR35 complexity, we at Peak Signal argue that only when Statements of Work are constructed and used in the right way are they of real value. Companies that get this right can unlock real benefits. This article will look at how to achieve this.
The right approach
So what should an end-client look for in a solution that improves upon current ways of working?
The merits of using an established, legitimate, reputable consultancy with real knowledge and credibility cannot be overstated.
In particular circumstances, it’s clear that the right approach is to ensure a managed team works to deliver what’s required, rather than leave a customer to handle a collection of individuals.
Successful, profitable companies play to their strengths – if it’s in the business of broadcast distribution, OTT delivery or software development, for example, HMRC-compliance and HR processes might not be among them.
The importance of a well structured SOW – and having the right people behind it – are paramount to delivering quality. An SOW engagement is worth considering for companies wanting to engage specialist talent – and can unlock a number of benefits when deployed with trusted suppliers to reduce risk and produce clear deliverables.
How SOWs work
Away from the backdrop of IR35 legislation, an SOW is one of the most important documents in a project. Drawn up at the outset, it details the work’s scope, location, purpose and processes, any regulatory conditions that are to be met, and the required dependencies, actions and deliverables.
It’ll outline what successful completion of the project looks like, and how those deliverables will be accepted, reviewed and approved. Vendors, contractors and personnel feature, as do payments and budgets and an agreed timeline.
Likewise, the consultancy that enters into an SOW agreement is assuming responsibility for managing and delivering a set of specific outcomes, to an agreed budget and within a known timeline.
Why their prevalence, regarding IR35, will increase
Under many existing arrangements, consultancies are contracted to source workers who are then supplied to the end-client to deliver the works. The simple supply of labour.
In these circumstances, it is the end-client’s responsibility to determine the tax status of the contractors working for them and it is also the end-client’s risk that the contractors deliver the required outputs.
In the context of IR35 and under an SOW, however, the consultancy assumes responsibility for the successful delivery of the work for the end-client, using its existing pool of talent, and managing the service from end to end – and, crucially, becomes responsible for determining the tax status of the contractors delivering the work.
The risks to the end-client
As things stand, the IR35 rule changes increase the responsibility faced by end-clients. They’ll have to ensure they have the right processes in place to assess the tax status of contractors hired to deliver the work when an agency is supplying the labour.
Or they’ll have to reconsider their options.
That shift of responsibility, through the use of an SOW, might appear a much easier and more attractive solution for end-clients in the context of IR35.
But there’s a risk. Using the wrong people to deliver an SOW presents a danger for end-clients.
A service must genuinely have been outsourced – not the supply of labour masked as such in an agreement.
The benefits end-clients can unlock
The difference between a consultancy supplying a fully managed service to the end-client compared to labour only is clear, and having the right people in place is central to delivering quality.
When engaging through an SOW, a consultancy must evaluate the risk of both the service delivery and the need to attract specialists with the appropriate skills.
Once the end client engages the services of a suitably qualified consultancy partner, the ability to deliver complex projects should increase. Leveraging expertise in a way that is attached to specific deliverables reduces risk, increases efficiency and unlocks tangible cost savings. Rather than hiring and hoping your network architect can migrate your services to AWS, a capable consultancy engaged under a comprehensive SOW framework will have a clear deliverable to achieve your migration and hence should remove a number of management risks.
We at Peak Signal have decades of experience in broadcast operations, service management, technology and systems. We believe that the judicious use of SOWs will enable further benefits to be realised by customers. If you’d like to discuss your requirements with a team of straight-talking experts who proudly take ownership and responsibility of deliverables, we look forward to discussing your requirements and creating powerful outcomes with you.
Published by Tom Pammenter
February 2021
