Written by FCSA Business Partner, Smart Pension

We’re often asked, how has the coronavirus pandemic affected the contractor market? There’s no single or straightforward answer to that question because there are so many variables that have shaped the payroll landscape in the last few months. From our perspective within Smart Pension, we have seen that some large umbrella companies who are clients have suffered a dramatic drop in the number of contractors whom they are paying. Naturally, that means a significant reduction in the number of individual contractors who are continuing to pay into their pension. However, this drop is very heavily dependent upon the industry in which they operate, and the most affected industry to come to mind is of course construction.

At Smart Pension, we introduced two changes this spring so that we can offer support to both umbrella agencies and individual contractor members:

  1. We know that many employers are worried about their financial position and concerned that they will have trouble with their cashflow or in meeting payment deadlines in the short term. A lot of them have been waiting for grants and furlough payments from the government. That’s why we have recently worked with many employers and umbrella companies to arrange payment plans for their pension contributions. Doing so gives them extra time to pay pension contributions, and we’ve been happy to wait for these payments until the companies have received their payments from the government.
  2. Similarly, we have seen an increase in the number of scheme members who are worried about their finances and have contacted us because they want to stop making pension contributions. Naturally, we understand that predicament and can sympathise with them. However, we also want to make it as easy as possible for them to re-join the scheme, and to restart saving for their retirement, in due course.

That’s why we have been proactively communicating with members who have chosen to leave the scheme after 1 March but not left employment. We have offered them the opportunity to pause, rather than cease, their pension contributions. They can choose to pause them up to their August or November paydays, or even until February 2021. We have also made it possible for people who want to temporarily stop paying contributions to get that organised online.

Thanks to our technology-first approach to pensions, we have been able to introduce these changes quickly and seamlessly. They mean that we can continue to help employers in remaining compliant, whilst also supporting both employers and employees with payment pausing options.

What’s happening with IR35 and umbrella companies, and what’s ‘joint employment’?

Since 2017, there has been a surge in the requirement for umbrella companies. They are a popular choice for contractors, not least because the umbrella agency makes all the tax and NI deductions on a contractor’s behalf, as well as being responsible for paying net salaries and providing payslips.

At Smart Pension, we have recently seen a second wave of new umbrellas setting up in 2020. This was mainly due to the impending off-payroll reforms (IR35) that were due to be enforced from April this year. IR35 is now scheduled for April 2021, but I think it’s fair to say that a shadow of a doubt still clouds the industry as current IR35 guidelines still need some clarification.

Something else that we’ve seen this year is the introduction of joint employment, where the worker (contractor) in effect has two employers. There is usually a direct employer and a secondary business, for example, a recruitment agency and an umbrella company. We weren’t presented with this scheme until a few months ago. However, we’ve worked alongside The Pensions Regulator to understand how to implement these schemes, in a compliant and correct way, and to provide support to the relevant parties. I am pleased to say that at Smart Pension, we are more than happy to review requests to facilitate joint employment offerings.

Payroll challenges, the furlough scheme and a great job in difficult times

To finish on a positive note, I would just like to touch on the amazing job that payroll software providers have done in recent months. We work with many of the payroll software providers who are also business partners of the FCSA such as JustAccounts, Merit, Solutio, and My Digital Accounts.

My team and I have witnessed first-hand the agility and responsiveness that these companies have shown in supporting their clients in the contractor and umbrella sector.

In a very short period, the majority of payroll software providers have made it possible for payroll professionals to process furloughed employees and split out the wage costs of furloughed workers in preparation for the grant claim. Improvements like this save valuable time for payroll professionals when they process claims for furloughed members of staff.

Fellow business acquaintance Sam Radion, Sales Director at Merit said: “The coronavirus pandemic has certainly made for interesting times. We have seen the rapid release of new legislation, and we were proud to be first to market with an automated system to process the new furlough payments within 48 hours of the technical details being released by HMRC. Across our hundreds of customers, we have seen a small number struggle and need extra help, while several customers have increased their market share and needed rapid deployment of new development to support their growth.”

I think that Sam’s statement supports my earlier comment – that there is no simple answer to the question of how COVID-19 has affected the contractor industry. Instead, things vary hugely depending on which sector they are in.

Need to know more?

Smart Pension has set up a payroll support group on LinkedIn – please feel free to join here.

The group includes software providers and payroll professionals, as well as members of our team at Smart Pension, so it’s a great starting point if you have any pension or payroll-related questions.

Ceri Thomas, Head of Payroll at Smart Pension