UK businesses may want to start looking for alternatives to outsourcing soon, due to a new legislation, dubbed IR35. From the 6th of April 2020, it will introduce major changes for workers providing services through an intermediary.
These are also known as ‘off-payroll’ or having IR35 status. Mid to large-size companies will be subject to responsibility for tax arrangements of long-term contractors working through Personal Service Companies (PSC’s).
According to the UK tax office, HMRC:
“The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.”
The new rules apply on a contract-by-contract basis, leading to firms determining taxation status directly on firms. Small businesses will be exempt. A series of clauses also ensure that subsidiaries or sister-companies cannot be used to act as a proxy.
According to a recent Harvey Nash, IT outsourcing survey, 20% of UK businesses are reported to prefer axing contractors, than to deal with IR35.
It’s high time for a solution.
Alternatives to Outsourcing for a Changing Market
The environment is changing, and that presents a golden opportunity.
Primarily for financial reasons – IT services are a vital battleground for companies. What makes it worse is a short IT talent supply. Denmark is one such country with a similar deficit to the UK, including IT professionals. With similar instances across Western Europe, IT costs have risen across most of the Eurozone, and Western Europe – making the need for IT outsourcing increasingly lucrative.
As companies turned to outsourcing as a way of filling this gap, additional taxes will impact their operations. Firms may be reluctant to offload an entire department, or even a project onto an unverified and geographically distant outsourcing company.
It is, therefore, unsurprising why companies look for alternatives to outsourcing. And extended teams are a perfect solution.
How is Extended Team Model Different from Outsourcing?
I’d like to go through the definitions for a moment. Nowadays, there are several ways to tackle software development:
- In-House Team – a company-owned and locally hired team who are on the local payroll. They are subject to taxation within the host country. Their status as permanent employees means complete oversight and at full-salary.
- Outsourced IT Teams – typically found overseas, these external squads undertake portions or even all of company IT functions.
- Whole-Department Offshoring – outsourcing to departments in far-off locations, often in vastly different cultures and time zones.
- Extended Teams – flexible, piecemeal hiring strategy. Such an arrangement enables extensions of in-house IT teams, on a person-by-person basis.
That last one stands out the most.
Too Good to Be True?
As a rule of thumb, the core aspects of a business should remain in-house. Other non-essential departments should be otherwise unrestricted to outsource.
Of course, this implies that a department is non-essential. But that’s no longer the case with IT. These departments are increasingly becoming reeled back into parent companies.
However, depending on the project, sometimes we need a more extensively resourced department. Occasionally, we only need one that’s lean.
Creative industries are familiar with the concept, as many freelancers offer services, minus the HR bureaucracy. Other kinds of services are now practical. In some countries, the costs for doing so are still relatively high. Tax regimes are also geared to remain on-par with this new economy.
The Extended Team Solution
Based on this new model, extended teams are a clearly modern approach. They are perfect for being rapid solutions for essentially ‘picking up the slack’ from overwhelmed teams.
Flexible by nature, they begin whenever required according to project timelines. These added-extras can even assist mid-project, to help take on an already started idea.
The scope of this work is also flexible and at the discretion of the in-house teams. Some extras may need to apply a specialisation to carry out a niche role. Other times, they may only be required to undergo busywork or tedious tasks.
What Makes Extended Teams Better?
Let’s go a little more in-depth.
Mind the Gap. Fill it.
In contrary to replacing an entire team, extended teams do not replace in-house teams. Instead, they augment them. These units are an add-on to the existing people power at the company – a digital mercenary.
Leaner & Meaner
These extended team members help assist in-house teams, all the while keeping the department lean and efficient. Bloated departments become apparent during quiet-periods, and prime for painful cutbacks. This has the knock-on effect of easy-come-easy-go culture. Prevent this scenario by applying only essential staff, at stable increments.
On-Demand Scaling
Remote team extensions are bespoke to your needs.
That means it’s easy to select team members one-by-one. They can also be hired for the duration of a project or can be on-hand for the next one as well. Alternatively, these individuals can conclude their involvement at the end of the project, or even just until a specific project milestone.
In the Driver’s Seat
Depending on your requirements, these teams can sit in the cockpit, or help with ground control. In either case, the benefits of having them are keeping a focus on the project at hand.
By-nature, these teams remain in full-contact with host organisations. They function as a single unit, virtually, as employees.
What Qualities Stand Out?
Unlike individual freelancers, extended teams should be hand-picked, with the proven aptitude of working in projects.
That’s why, as a rule of thumb, an extended IT team should come from a reputed IT company. An excellent place to start would be from a Clutch-verified business. Be sure to view and request information regarding their portfolio as well. Well-resourced companies will be sure to have one tailored to address your demands.
When contacting them, look out for English proficiency too. It may seem a tad shallow, but legible English in written and spoken communication will tell you much about your future cooperation. That’s why I recommend you never skip out on the chance for a Skype, or phone call.
Protecting Your Company’s Reputation
In-house is in control and forms your core. Any efforts to widen this core can be challenging to reduce at later stages. The trouble has been the damage to a firm’s reputation. That’s not to mention the resources that are needed to find workers in the first place, only to relieve them of their duties.
My view is that downscaling can be daunting for recruiters and team morale, as it can facilitate a revolving-door culture. It’s why alternatives to outsourcing might be surging in popularity.
Key Findings
Companies must meet their bottom line, while never compromising on cost-effectiveness, speed, control and quality. As changes in taxation may impact an access to IT professionals, alternatives to outsourcing emerge:
- Offshoringis a healthy option, offering department-sized delegations of functions. However, it is risky.
- Nearshoringkeeps outsourcing close-to-home, as you hire from countries more culturally similar to yours, offering good value for money.
- Extended teams allow you to hire on individual or group basis, whenever you need to add more people to the project. They are easy to scale and you remain control over an in-house team.
Extended groups, who remain close, time-wise, and communicatively, are akin to using on-demand staff, for your organisation.
In the IT sector, technology plays a starring role in advancing the connectivity of these new opportunities. In all, it’s a perfect scenario that helps companies take advantage of a flexible and cost-effective generation of IT support.
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