With the postponed start date of IR35 drawing ever closer, there has been an increase in our clients’ questions about how it will impact their studios and the creative sector as a whole. Questions such as “Will there be an increase in freelancers moving into permanent roles?” 

As with all major legislative changes, there will be a period of adjustment (simply a look at GDPR as an example), but these hiccups usually settle down in about six months or so. The key areas of impact to consider will be the studios themselves and how it will affect rates. 

Impact on Studios

As mentioned in previous articles, many, not all, companies will be affected by IR35. The hardest hit will likely be the smaller studios owned by a larger group but who operate entirely independently. There are three main areas in which I expect there to be an impact over the next year or so while adjusting to the implementation of IR35; time, talent, and impact on rates.

Time

No way of escaping it; adjusting to IR35 will take up a good chunk of time. Someone within each business will need to judge every single freelance position currently existing and those which will exist in the future to decide your IR35 status correctly. As we all get used to the process, it will become faster and smoother but not likely in the early stages. As there is uncertainty about the rules, there is also expected to be a fair few internal meetings and discussions about the best course of action.

Talent

Freelancers have a choice. One of those choices is not to work briefs that fall inside IR35. This is the reality that some studios will have to face. To attract the best talent, you may need to think more creatively about how freelancers will work with you and your team. This could be regarding the brief itself, their responsibilities and how they work, or how you can alter briefs to ensure they sit outside of IR35. (Please speak to me if you need help on how to do this.)

Impact on Rates

Pre-pandemic, this would have been a much bigger question; however, the landscape is now slightly different. The impact on rates is limited as the market is beginning to rebound and is growing week on week. I’m increasingly convinced there will be a bottleneck in the not too distant future where studios will be competing to attract the same talent at precisely the same time. 

Here are how IR35 could affect rates:

Freelancers take the cost - When a brief is inside IR35, the freelancer takes the ‘hit’ and pays the associated costs from their usual rate. They will usually still be better compensated than a permanent employee like for like, but they will be earning less than they previously earned.

Studios take the cost - Should a brief fall inside IR35, the studio then uplifts the freelancer’s rate to fully cover associated costs and keep attracting the best possible talent. Higher cost for the studio, but the freelancer earns what they would have pre-IR35.

Shared Cost - The mid-ground. The freelancer and the studio split the costs. The studio pays the freelancer slightly more than they would have previously, and the freelancer also absorbs a portion of the costs. Often seen as the ‘fair’ solution but not always practical.

The likelihood is that at the start, there will be a variety of approaches by different studios, but as the demand for talent rises and the restrictions of the pandemic lessen we will likely see a move to the middle ground.

As always if you have any questions relating to IR35 then please just give me a shout.