When it’s a ‘contrived’ Statement of Work…
Over the last 12 months Statements of Work have increasingly become popular as a method to engage PSCs ‘outside of IR35’ under off-payroll legislation.
The principle is sound – define all scope deliverables and fees up front so that the end client is able to prove all the key tests (control, risk, MOO, substitution) are in place prior to work commencing. The execution however is often flawed and demonstrates naivety.
More often than not, contrived statements of work are not an intentional creations. The challenge is that the statement of work templates they use are simply word based documents provided by the client which defines the basic elements and styling but do not control the structure, content, formatting or calculations. In addition, the users who complete them are often are inadequately trained or lack experience.
Unfortunately, this can result in an SoW being considered ‘contrived’ even if that wasn’t the intention of the author to deceive.
Here are some poorly authored ‘Outside IR35’ SoW examples
- SoWs that simply transfer a job description or role expectations
- SoWs that are pure time and materials (day or hourly rate) with no capped or fixed value
- SoWs that have vague or unmeasurable deliverables and yet have a term that intimates disguised employment (2 or more months).
- SoWs that are purporting to deliver a fully contracted out service through a ‘Consultancy’ and yet are delivered sub-contract on a Time, Material & Expense (TM&E) basis
- SoWs that show no evidence of updates/revisions when scope or requirements change.
- SoWs that get constantly extended for the same service without any justification for the extension or adding of new deliverables.
The good news however is that Statements of Work, when done properly, can provide a very solid foundation for engaging and evidencing off-payroll compliance in ‘outside IR35’ determinations
To achieve this, your Statement of Work must reflect the true nature of both the engagement and the status determination and, follow some basic rules:
- Make sure that the authors are trained and have experience in both SoW authoring and off-payroll compliance
- Make sure deliverables are measurable, have substance and are quality driven with sufficient details and at least one unique deliverable per payment milestone to enable them to manage their service delivery without direction. (CONTROL & RISK)
- If sub-contracting ‘Outside of IR35’ make sure the key IR35 tests are met by mirroring the deliverables from the contracted out service to the contractor via an SoW and agree a fixed price. (RISK)
- Evidence of change control for an SoW when contractors is asked to deliver additional services. (CONTROL)
- Any extensions should have justifiable reasons (force majeure) and additional milestones & deliverables to match. (MOO)
- When extending an engagement with no justifiable reason create a new SoW and execute due diligence (SDS) to ensure the engagement is within compliance