Why the shape of your workforce matters

What does workforce structure mean?

Workforce structure is the categorisation of the people who work for or deliver services to your organisation.

Workforces are sometimes shaped organically, with team members moving into certain roles in order to move the organisation forward at that point in the business lifecycle, but frequently tax considerations have driven the choice of worker categorisation within the workforce, ie what worker category would bring about the lowest tax liability for the organisation and the worker.

This has meant that workforces have been shaped more to limit liabilities than to ensure organisational goals are achieved. And HMRC is very interested in examining organisations whose workforce make-up does not stack up against the actual services that their workforce are delivering, and where more tax should in fact be paid.

Why is this important?

It is true to say that there will be tax efficiencies to be understood and applied, but in the context of this closer government scrutiny, organisations need to understand and importantly, be able to defend, their workforce choices.

Examining your workforce structure means taking a step back and deciding if you have the correctly skilled people in the right roles both for them and the company and working to the right types of contracts, evidencing appropriate workforce rights and tax obligations.

This flows into exploring how your different types of personnel are incentivised and remunerated – informing your talent management and retention strategies, as well as workforce engagement. 

In short, there are legal, tax and company performance benefits from looking at your workforce from a strategic organisational perspective.

The impact of working status

The different types of working status categories – employed, self-employed, worker/contractor, personal service company – engender differing legal rights and tax positions for the individual and the company. There are benefits to both parties in mapping out the best position based on people motivation and organisational objectives. We explore separately what worker status means and why understanding and operating it correctly is important to many organisations in detail here

The importance of an organisation’s tax structure

It was recognised in the Taylor Review of 2017 that decisions on workforce structure have often been driven by tax considerations. Differences in the tax treatment of different categories of worker created incentives for both the individual and the company to deploy self-employment models, whether or not they were the most appropriate for the circumstances.

It is now acknowledged that tax, and the potential risks and opportunities of using the different category of worker, should be just one of a number of perspectives to be considered when undertaking a strategic review of your workforce. 

The value of employment contracts

Most company executives know that under UK employment law their workforce must have employment contracts in place. However, a surprisingly large number of companies admit to having less than perfect HR processes and administration, with contracts often being inappropriately framed and improperly executed. 

More than that many organisations use off the shelf employment contracts across their workforce rather than bespoke contracts for differing roles. Using tailored contracts means that an organisation can ensure that the correct status, rights and protective clauses are in place, particularly important for business-critical roles.

What to do next

The best place to start to ensure that your workforce structure is optimised for your organisational objectives and would stand up to HMRC scrutiny, is with a workforce assessment or you can find further helpful guidance on contract changes in our new forces at work guide

You should layer your organisational goals and people plan onto this assessment to highlight where you may need to make changes from a legal, tax and HR perspective.