Is employing contractors on fixed-term contracts a solution for ensuring compliance with the IR35 rules?

If an organisation employs a contractor on a fixed-term contract, rather than through the contractor's intermediary, it would take the engagement out of the IR35 rules. However, while this approach would ensure IR35 compliance, it may not be a practical solution for the parties involved.

Not all contractors will be prepared to accept a fixed-term employment contract, so this approach could lead to organisations being at a disadvantage when competing for skilled contractors.

If a contractor does agree to a fixed-term employment contract, they will be entitled to employment rights, such as holiday pay and auto-enrolment pension rights. This will involve additional expense for the organisation. It will need to decide how much of that expense it will absorb and how much it will seek to pass on to the contractor; however, the contractor may not be willing to significantly reduce their fees to reflect the associated expense. If the employer does not negotiate the contractor's fees down, there may be an equal pay issue, as the contractor's pay could be significantly outside the salary bands for equivalent employees in the organisation.

Medium- and large-sized private sector organisations are responsible for applying the IR35 rules from 6 April 2021.