Tens of thousands of public sector cotractors to see net pay slashed by a fifth

From a press release from Randstad (employment/recrtuitment agency) which landed in my inbox two weeks ago:

* Final legislation on off-payroll working or “disguised employment” comes into force on 6 April and could see contractors’ net take-home pay drop by 20%
* Public sector organisations, having had little time to prepare for the change, are overwhelmingly following the line that all roles will fall within IR35
* Randstad warns of a mass exodus of public sector contractors to the private sector, leading to skills shortages in vital public services

About time too.

It’s fair enough if people/businesses in the private sector try and reduce their National Insurance liabilities by dressing up employment as self-employment. National Insurance is a nasty tax, so I have no moral qualms about that, even though in practice I don’t recommend it as HMRC usually catches up with you and then it gets really nasty.

But it always horrified me that public sector employers go along with this charade. The tax withheld from wages by the public sector is not really tax, it is a pay cut, that’s great news for taxpayers.

How on earth they work out that net take-home pay will fall drop by 20% is a mystery to me. Income tax rates are the same for employees and the self-employed, and Employees’ and Class 4 National Insurance on earnings over the upper earnings limit is the same (2%).

The only difference is between Employees’ NIC (12.8%) and Class 4 NIC (9%) on earnings up to that limit (so maximum cost/pay cut approx. £1,000 a year). The rules on allowable expenses are a bit more generous for the self-employed than for employees, but in practice, that doesn’t make a huge difference.

And finally, let’s see whether there is a mass exodus or not, I don’t see how there can be. MBK tells me that if you have worked in the public sector for a few years, private sector employers aren’t interested in you any moret.