NREs: Step by Step

1. Scope out what to do

Historically, if in an attempt to gain flexibility, a company attempted to convert permanent staff into Limited Company contractors, they would fall foul of HMRC because they believed the company (and contractor) were avoiding tax. This broadly ended the trend of using contractors in place of employees.

With NREs, all of this changes. Whilst technically "contractors", NREs are paid in the same way as permanent staff, and so pay all the same taxes. There's no chance of HMRC involvement and so it has now become possible to convert permanent staff into "contractors" with impunity. This is why we say NREs are "government approved".

2. "Downsize"

Whether you have the right number of people in your organisation or not, converting to NREs is a form of downsizing. That is, your official headcount (that you report in accounts filings) is about to go down - irrespective of the number of workers you employ.

The current Covid and Brexit situation makes downsizing a relatively simple procedure. Even still, Unions are likely to take an interest, and will need to be placated. However, this is the last time you will need to deal with unions and the last time you will need to pay redundancy benefits.

Downsizing for the "worst possible scenario" at this time means you will displace as many workers as possible. Attempting to reduce the numbers will mean you'll need to repeat the process again in the future. Remember: you aren't necessarily reducing the number of workers you have - you're just changing their employment conditions.

3. Hire NREs

Historically you couldn't advertise an exact same role as you'd previously made redundant. However, that all changes with NREs because the worker is of a different type, their employment conditions will naturally be different and so even though the work you need doing is the same, it isn't the same role. Thus, you are free to use the same job descriptions and even titles as the people you've made redundant - just that their replacements will be NREs instead of permanent staff.

Since NREs are typically cheaper that permanent staff, you may find you can advertise NRE positions with an apparently higher annual rate than their permanent counterparts. This has an obvious encouraging effect on your former permanent staff to return as NREs.

4. Benefit!

Once a permanent staff member is converted to an NRE, they no longer receive any sort of employment benefits. This tends to encourage workers to work longer hours, take less holidays and to take far fewer "personal days", or frivolous sick days. You don't need to pay pension, maternity or other benefits.

Most importantly though, the reduced (official) headcount has a positive effect on share price (through "earnings per employee" metrics). This attracts investment, and the consequent benefits to shareholders.

Footnotes

When hiring NREs, you technically need a "status determination statement" (SDS). Technically you need to produce these for each role you hire for (although "blanket" assessments are very common and can also be used - more personalised SDSes can be produced retrospectively if required). However, HMRC have made the overhead of producing these very low though a tool called CEST (or see the very helpful CEST Explorer tool). CEST tends towards an "inside IR35" result (which is required for NREs), but such a result can be guaranteed by answering questions favourably (and by writing such terms into the NREs engagement contracts). Key points are:

• No right to "substitution" (that is, you'll only allow the worker to perform the work, not a substitute chosen by them if the worker is unavailable)
• You reserve the right to tell the worker how the work should be done. Even if you don't micromanage your workers, reserving the right to do so (in the contract and SDS) ensures an "inside" outcome.
• Workers must use your equipment. You want them to appear to be your employees, and so they should use your vehicles, computers and workwear.

Following these simple rules in the contract and SDS (even if not followed through in actual work) will be enough to secure an SDS that supports NREs.